Most companies these days offer 401k retirement plans to help you save money tax-free for your retirement. If you are offered a 401k plan through your employer and you are not taking advantage of it, DO IT NOW.

Luckily, my employer allows us to participate in our 401k plan after 30 days of employment. Some companies make you wait up to a year before you can participate in the company 401k plan.

If you currently have a 401k, don't make these common mistakes:

  • Using your 401k like an ATM. I've been guilty of this myself. There is no other (legal) way to get money so easily. With my plan, I can log in and go to the loan section and it will give me a preapproved loan amount and the interest rate. If I choose to borrow the money, I can have the money in my checking account in as little as 48-72 hours. By borrowing money from my 401k, I am losing the opportunity to have that money grow and compound in my account. Not only that, if you leave the company, your are required to pay the money back immediately or be subject to taxes on the money and pay a 10% penalty.
  • Not taking advantage of the company match. My company offers up to a 3% match when you contribute at least 5%. I've always been sure to contribute at least 5% to get the full 3% match. Not taking advantage of the matching funds is like leaving money on the table.
  • Too much company stock. It is certainly not a good idea to have too much company stock in your retirement account. If the company goes under, not only would do you lose your paycheck, you will lose your retirement money too. Remember ENRON!
  • Taking the money when you change jobs. There is nothing wrong with this if you plan to roll the money into a IRA. What you don't want to do is treat it like extra money. Remember, the IRS still won't let you have this money without hefty penalties for early withdrawal.
  • Not fully understanding your options. One of my coworkers has been with the company for 5 years. She did not understand how the 401k worked and only elected to contribute 1% of her pay. Not only that, she directed 100% of the money to a money market type fund. I actually spent a few hours after work explaining her 401k options and she's made some major changes. She is now contributing 5% in order to get the full company match and she has chosen a more diversified portfolio.
Don't wait until next week or next month to review and make the appropriate changes to your 401k. Do it NOW! This is money that you will depend on when you are retired.

When you are retire, don't you want to be hanging out on the golf course instead working?


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  1. Anonymous // January 9, 2008 at 9:24 PM  

    Good post. Sadly...

    not enough people are contributing to 401k

    those who contribute does not contribute enough

    and many who contribute don't invest it properly

  2. Noel Larson // January 9, 2008 at 10:02 PM  

    The other big issue out there is that some are too conservative and are happy with 3% returns. Given inflation will be about 3% long term they really aren't growing.

    Your fund should get more conservative as you get closer to cashing out, but not in your 20's!

    And yes...I would rather be out on the golf course!