Current:Home > FinanceHere's what not to do when you open a 401(k)-LoTradeCoin
Here's what not to do when you open a 401(k)
View Date:2024-12-23 18:54:56
Saving well in a 401(k) could set the stage for a comfortable retirement. As of 2022, the average 401(k) balance among Vanguard participants was $112,572, while the median balance was $27,376.
But no matter what savings goal you want to set, it's important to manage your 401(k) well from the start. And that means steering clear of these newbie mistakes.
1. Not choosing investments
The money in your 401(k) plan shouldn't just sit in cash. If you go that route, you might stunt your savings' growth in a very big way.
But it's just as important to actively choose investments for your 401(k). If you don't, you might end up unhappy with your results.
Many 401(k) plans are set up to automatically invest enrollees in a target date fund if they don't choose investments themselves. Target date funds are designed to help savers meet specific milestones. A target date fund for retirement will commonly invest your money more aggressively during the earlier part of your savings window, and then shift you over to safer investments as the end of your career draws closer.
For some people, a target date fund is a good investment solution. But that may not be the case for you. You may find that you're able to generate stronger returns in your 401(k) by investing in mutual funds or index funds. So take a look at your investment choices, rather than let your money get invested for you.
2. Not looking at fees
Another drawback of investing your 401(k) in a target date fund? These funds are notorious for charging hefty fees, and the same tends to hold true for mutual funds.
Investment fees can eat away at your 401(k)'s returns over time, limiting the extent to which you grow your balance. So always look at fees before deciding where to put your money. And generally speaking, index funds are going to be your best bet from a fee perspective because these funds are passively managed.
3. Not getting your full workplace match
It's common practice for employers to match 401(k) contributions to some degree. Figure out what match you're entitled to, and aim to put in enough money from your paycheck to snag it in full. If you don't, you'll end up passing on free cash.
And remember, when you give up an employer match or a portion thereof, you also give up potential gains on that money. Forgoing $2,000 in employer matching funds when you're 40 years away from retirement will mean actually losing out on over $43,000 if your 401(k) normally delivers an average annual 8% return, which is a bit below the stock market's average.
The simple act of signing up for a 401(k) plan is a great thing to do for your future. And the more you're able to contribute to that savings plan, the better. But do your best to steer clear of these mistakes when you first open your 401(k) so you don't wind up short on retirement cash down the line.
The Motley Fool has a disclosure policy.
The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.
Offer from the Motley Fool:The $21,756 Social Security bonus most retirees completely overlook If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $21,756 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.
veryGood! (56)
Related
- Powerball winning numbers for Nov. 13 drawing: Jackpot rises to $113 million
- NFL mock draft 2024: Can question-mark QB J.J. McCarthy crack top 15 picks?
- Twins acquire outfielder Manuel Margot in 3-player trade with Dodgers, who add Kiké Hernández
- What counts as an exception to South Dakota's abortion ban? A video may soon explain
- 32-year-old Maryland woman dies after golf cart accident
- Is Reba McEntire Leaving The Voice? She Says...
- FDA warns against smartwatches, rings that claim to measure blood sugar without needles
- DEA cracks down on pill presses in latest front in the fight against fentanyl
- Prosecutor failed to show that Musk’s $1M-a-day sweepstakes was an illegal lottery, judge says
- U.S. and U.K. conduct fourth round of joint airstrikes on Houthi targets in Yemen
Ranking
- U.S.-Mexico water agreement might bring relief to parched South Texas
- Proposed new Virginia ‘tech tax’ sparks backlash from business community
- Musher who was disqualified, then reinstated, now withdraws from the Iditarod race across Alaska
- Iowa county is missing $524,284 after employee transferred it in response to fake email
- Watch out, Temu: Amazon Haul, Amazon's new discount store, is coming for the holidays
- Why Marvin Harrison Jr., Ohio State star and NFL's top receiver draft prospect, will skip combine
- NFL scouting combine is here. But there was another you may have missed: the HBCU combine
- Family of exonerated Black man killed by a Georgia deputy is suing him in federal court
Recommendation
-
GreenBox Systems will spend $144 million to build an automated warehouse in Georgia
-
Lawsuit claims isolation and abuse at Wyoming Boys School
-
The 10 NFL draft prospects with most to prove at 2024 scouting combine
-
Burger chain Wendy’s looking to test surge pricing at restaurants as early as next year
-
UConn, Kansas State among five women's college basketball games to watch this weekend
-
Jennifer Lopez and Ben Affleck Reveal Real Reason Behind 2003 Breakup
-
2 men convicted of killing Run-DMC’s Jam Master Jay, nearly 22 years after rap star’s death
-
Phones are distracting students in class. More states are pressing schools to ban them