Broker Check

401k Mistakes

July 18, 2016

Critical 401k Mistakes

Most people have access to a 401k retirement plan or something similar at work.  This list might help you be able to avoid doing detrimental actions to your wealth.  This would be a good article to leave in the break room at work or share with your spouse at home. 

The biggest mistake, bar none, is not getting in it.  I have heard all the excuses like, “I’m not going to be here long”.  You can rollover any monies you contribute into an IRA after you leave work.  “The company doesn’t match”, is another good one.  You are in charge of the date you retire.  The sooner you start, the sooner you can retire so you might as well as start now.  If you feel you can’t afford it, you can’t afford not to get in the plan.  I’m sure you might be able to drink less soda pop and put that money into your 401k. “I don’t trust the company” has come up before also.  The money goes into a separate trust and once your money has been transferred into the 401k, the company can’t pull it back out.

Another big mistake is cashing it out every time you switch jobs.  This earns you a 10% tax penalty from Uncle Sam and you have to pay taxes on the money.  If you truly need it to live on, try spending less and saving in an emergency fund outside of work.  If you have a financial emergency and you need it, that’s different.

How many of you get specific financial advice every 5 years on your investments?  It’s your responsibility to get advice.  I can’t tell you how many times 65 year olds come in to rollover their 401k and 100% of the money is in stocks.  This is crazy because you could lose 50% of your 401k the year you WERE going to retire.  Many financial planners can charge you an hourly fee and review your specific investments for you.  The Department of Labor(DOL) has made it almost impossible for us to give you specific advice on your plan if we are the representative on the plan.  Have you ever asked the advisor for specific advice on your plan? It can be frustrating.  I also have seen 50 year olds with $150,000 in a money market option.  It had been in there for years.  I have also seen 30 years olds 100% invested in stable value.  I am glad they were in the plan, but it might be a lot harder for them to save enough to retire by 65.

Too much company stock: I have seen many plans where employees have most or all of their money invested in the stock of the company where they work at.  This can be a very high risk move, you could make a lot of money and you could lose all of it.  Again, if you are getting close to retirement, having most or all in company stock is a very high risk move, please remember the ENRON story.

I could go on but I think you get the gist of this article. Quality financial advice is definitely worth the fees you pay.  This article is general in nature and is not intended for individual advice.  Please see your financial advisor.

Scott L. Webb is the owner of Webb Financial Group LLC and can be reached at, (740)454-6113 or www.WEBBFINANCIALGROUPLLC.COM. 

Securities are offered through LPL Financial,  member FINRA/SIPC.