I know the market is scary right now. Once day it's up a few points and the next day it's down a few hundred points. Granted, investing in the stock market is not for the faint at heart. One thing to remember though, if you are years from retirement, you have plenty of time to make up for those temporary losses in your 401k.

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.

If you haven't heard it already, stocks are currently at a deep discount. If you buy a stock at $10.00 per share now, it has the potential to be worth $20.00 per share years down the road.

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.

Thursday, June 26, 2008 Talkback Question:

Does your employer offer a retirement plan? If so, do you participate and how much do you contribute per paycheck.

*SingleGuyMoney's Answer: Yes, my employer does offer a retirement plan and I contribute 6% bi-weekly. My employer matches up to 3%.

I want to hear from my readers. Please be sure to leave a comment with your answer to the above question.

Don't forget to enter the free gas giveaway and subscribe to SingleGuyMoney.

Have you already paid off your credit card debt and created your emergency fund? If so, another use for your tax refund can be to give your retirement savings a jump start.

Trying to decide between a Roth or Traditional IRA? Consider the differences between the two and decide what works best for you. Whether you choose a Roth or Traditional IRA, you're allowed to make up to a $4,000 contribution ($5,000 if you are 50 or older) for the 2007 tax year.

What is the difference between a Roth IRA and a deductible traditional IRA? The main difference between the two is that in a traditional IRA, you can deduct contributions from your income in the year you make the contribution. Say you made $40,000 in 2007 and you make a $2000 contribution to a traditional IRA. You can deduct your contribution from your income and your income taxes will be based on $38,000 instead of $40,000. At 59 1/2, you may withdraw funds from your account but you will be forced to pay taxes on all capital gains, interest and dividends that were earned over the years. If you chose to open a Roth IRA with your $2000, you would not receive the income tax deduction. If you needed money from the account, you can withdraw your principal at any time without penalty. If you withdraw any of the earnings from the account, you will be subject to a 10% penalty. When you reach retirement age, you are able to withdraw 100% of your account without penalty. Not everyone qualifies for the Roth IRA due to income limitations. A single person cannot make over $95,000; married couples cannot make over $150,000.

Looking for a place to open your IRA? Consider Zecco.com for free trades and no minimum balance. You may also consider TradeKing. No minimums and no catches. They will also reimburse you up to $150 for transferring your account to TradeKing.
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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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What's in my 401k?
Where did my 401k money go?
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I had a reader ask a question of how my 401k was invested. Since I need to review my allocation anyway, I figure why not share with everyone.

I currently invest 5% per paycheck in my 401k and my company matches 3%. This is the maximum amount they will match so I make sure I take advantage of all the "free" money I can.
The current balance in my 401k is $40,839.88 and is invested as follows:

• 35.21 % Fidelity Diversified International
  
• 23.09% Fidelity Low Priced Stock
• 17.12% Vanguard Total Stock Market Index
• 14.35% Oakmark Equity & Income
• 3.89% Vanguard Value Index Fund
• 2.83% Company Stock
  
• 2.68% Fidelity Midcap Stock
• .71% ABF SmallCap Value
• .11% Fidelity Dividend Growth

This allocation brought me a return of 8.8% for 2007. Considering the performance of the market last year, I am pretty comfortable with this number.

I started 2007 with a balance of $32,788.64 and after $3,260.95 employee contributions, $2789.33 employer contributions, $2,949.10 in dividends and interest, and $3,068.84 in value appreciation, I ended with $41,903.30. Fees for the year were $4.46.

Important Note: I am not promoting any of the above funds or advocating this investment strategy.
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Related Posts:
Where did my 401k money go?
My 401k is Kicking Butt!
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