Aug 11

The Most Common 401(k) Mistakes People Make

By Nikki Young, CFP®, Financial Advisor

An employer-sponsored retirement account is a vital part of your retirement planning picture. So it’s important to avoid making mistakes with these plans.

The most common mistake I see people make while they’re employed is not taking advantage of the full matching 401(k) contribution offered by their company (or the TSP for federal government employees). Matching contributions offer additional retirement savings. So, if your employer offers a match, it makes sense to contribute at least the amount your employer requires for the match.

Now more than ever, an increasing number of employers are offering Roth savings components to their 401(k) plans. The benefit of a Roth 401(k) is that the withdrawals you make in retirement will be yours to enjoy tax-free. If you have this savings feature available to you and you’re not taking advantage, you may be missing out on potential tax savings in retirement.

When people leave their employer, what I see most often is that people don’t know or fully understand their options for managing their old 401(k) or TSP. When you leave your job, there are four choices for these plans: Cash out, stay with the plan or roll it over into a new 401(k) or an IRA. When we don’t understand our options, the default is often to do nothing. If you stay with the plan, depending on how many times you change jobs, you could end up having to keep track of multiple accounts which makes it easier for one to slip through the cracks and be forgotten. If you cash out the account, it will incur taxes and penalties, depending upon your age. Neither is advisable because every dollar counts when it comes to a successful retirement plan.

A few suggestions for avoiding these mistakes with your employer retirement plan include:

  1. Review your benefits package to see exactly how much, if anything, your employer will match. Then increase your contributions to at least that amount if you’re not already there.
     
  2. Check your 401(k) plan documents to determine if a Roth 401(k) option is available to you. You can determine how to shift your contributions from the traditional pretax bucket to the Roth post-tax bucket, or you may be able to contribute to both.
     
  3. For old 401(k)s or TSPs, I recommend seeking the advice of a qualified financial professional who can review your specific situation holistically and assist you with making the best decision for your retirement needs.

If you need advice on retirement income planning, I’m available to meet with you virtually, in our Herndon main office or our One Loudoun office. Click here to schedule a complimentary, no-obligation consultation.

The opinions in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.
Author

Nikki Young, CFP®, TPCP®

Financial Advisor

Financial Advisor Nikki Young is a CERTIFIED FINANCIAL PLANNER® (CFP®) professional and Tax Planning Certified Professional® (TPCP®). She has been part of the firm’s dynamic and client-focused team since 2017.

With over a decade of experience advising individuals and families, Nikki is known for helping clients turn complex financial decisions into strategic, actionable plans.

Her background includes specialized roles in lending and mortgage consulting at PenFed Credit Union, and earlier tenures at Mission Federal Credit Union and Bank of America, where she honed her client-first approach and first embraced holistic planning.

Today, Nikki works closely with public sector employees, high-income professionals and women who have built significant wealth and seek a clear, long-term strategy to preserve it, grow it and use it with intention. Her clients turn to her for guidance on investment management, tax-efficient retirement strategies and legacy planning.

She holds FINRA Series 6, 63, and 7 licenses*, in addition to the prestigious CFP® and TPCP® designations, she earned her bachelor’s in financial services from Penn State University.

Originally from Lake Charles, Louisiana, Nikki now calls Northern Virginia home, where she lives with her daughter, Maela. Nikki finds balance in life through time outdoors, meaningful moments with family and cheering on the New Orleans Saints football team — win or lose.

For videos and webinars on various financial topics, visit Nikki's website at nyoung.nwfllc.com.

 

*Held with LPL Financial
Nikki Young CFP Financial Advisor

Financial Advisor

Nikki Young, CFP®, TPCP®

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