Retirement plan 'tricks and treats' for employees
Published October 26, 2012 5:47 PM
|
Updated October 29, 2012 2:26 PM
1 Min Read
Trick: 401(k) Loans
Borrowing from a 401(k) may seem like an easy cash fix, but doing so can haunt you for years. A 401(k) loan should always be a last resort, since it must be repaid with after-tax dollars and comes with hefty penalties if you leave your job before you repay it.
Trick: Not diversifying
Be careful not to put all your goodies in one basket. Allocating too much to one investment, such as company stock, inhibits diversification, which can keep your savings from reaching its full potential.
Trick: Prioritizing incorrectly
While retirement may seem far off, and while other expenses might seem more pressing, planning for retirement now is one of the most important steps you can take towards financial security. Contributing at least enough to get your 401(k) match should be your No. 1 priority over paying off credit card debt, saving for a home or a childs education.
Treat: Tax-deferred contributions
With a traditional 401(k), contributions are made on a pre-tax basis and taxes are paid when the person takes distributions from the plan.
Treat: Employer match
What could be better than free candy? Free money. Make sure you contribute enough to get the full employer match. Dont leave money on the table!
Treat: Professional investment advice
Data from Charles Schwab shows that participants who take advantage of professional 401(k) advice double their savings rate, are better diversified and feel more in control of their investments.
Trick AND Treat: Fee disclosure
One of the newest perks in the 401(k) space is increased transparency in the form of 401(k) fee disclosure. Participants now receive a statement detailing what theyre paying in fees for their employers chosen 401(k) plan. While having this insight is a welcome treat, dont be tricked into thinking that cheaper is always better.
