Having a 401(k) account and successfully managing it includes not only maximizing your benefits but also avoiding possible mistakes. Here are some of them and their impacts on your wallet! So, find out which are the classic 401(k) mistakes to avoid.
Taking an important step in life such as opening a retirement savings account requires a thorough investigation. If you’re aware of each term and condition, there are higher chances that you’ll be prepared to manage whichever problem you come across without a lot of worries.
One of the things you should pay attention to is an account’s taxes, so as to be prepared to pay for them at the right time. Traditional 401(k)s don’t require you to pay any taxes until you withdraw the money from your account, which is why this is an issue that you need to put a pin and save for later.
On the other hand, a Roth 401(k) allows you to contribute money from your salary after you’ve paid taxes on it. Here are some easy steps to pay your taxes! Keep in mind that this type of account doesn’t include tax payments when you take the money out of it.
If your employer matches a portion of your contributions to your retirement savings account, it’s sensible to make the most of this. However, it shouldn’t happen at the expense of your current living costs. In other words, you can’t sacrifice a huge sum of money to save for your future while neglecting other important payments in the present.
For example, you should prioritize some costs like paying off your student or credit card debt or taking care of your mortgage and car loan payments. Of course, you can tackle these expenses while saving some money in a 401(k), but they should be under control before attempting any generous savings.
Lastly, avoid cashing out your 401(k) before its target date! If you’re leaving the company that first established your account for another one, cashing out your retirement fund can cost you some heavy fees and penalties. Most times, it makes much more sense to rollover your account, even if it includes some paperwork.
Some people find themselves with overcontributions in their 401(k) accounts. Read this article about what you should do in this situation!