Welcome to Executive Benefit Plans, Inc.

 

Main Link Column
Select this link Retirement Plans
Select this link Strategies
Select this link Employee Benefits
Select this link Individual Benefits
Select this link Participant Info
Select this link White Papers
Select this link Consulting Service
Select this link Proposal Request
Select this link Administration
Select this link Contact
Select this link News
Select this link Blog
Select this link Home
 

Plan Insight

AUGUST 2010 Newsletter

The Six Biggest 401(k) Mistakes

Your 401(k) for your retirement is like a screwdriver for an assembly. It will help a great deal, but you still have to put in the effort to use the tool properly. 401(k)s bring millions of people in the U.S. many steps closer to a comfortable retirement. But like everything else in life, 401(k)s donít provide absolute retirement security. Here are six mistakes many people are making with their 401(k) plan.

1.   Thinking a 401(k) is it. Again and again I hear others justify their outrageous spending as okay because they fund their 401(k)s. Just because you contribute to your 401(k) does not necessarily mean that you are going to have a comfortable retirement. Living below your means is still key and a simple fact that is all too easily forgotten.

2.   Relying on auto pilot. Automatic deposits are a great way to save, but it presents problems when we just deploy the set and forget strategy. Even if your plan allows you to automatically rebalance your portfolio, there's a need to change your allocation based on your continually changing needs. For those who don't know how to change allocations by yourself, learn how by asking your colleagues for tips, or the plan administrator for an introductory guide.

3.   Ignoring alternative investments. Traditional IRAs, Roth IRAs, savings, and investment accounts are all investments that you should have if you want to enjoy your twilight years. Just because 401(k) plans have tax advantages doesn't mean that it's automatically the best place to put your money. The only way to be certain is to do a thorough comparison of the differences between a traditional IRA and a 401(k).

4.  Paying high expense ratios. One of the reasons a 401(k) may not be the best place to put your money is that many plans have funds that charge unnecessarily high expense ratios. Just as personal finance 101 taught us, youíll need a higher return to justify the higher expense. Keep track -- it's just simple mathematics.

5.  Forgetting that a 401(k) is for retirement. I shouldn't say forget, because most people probably know this. The problem is actually the temptation of that lump sum whenever there's a job change. Too many people will need to rely heavily on their 401(k) to fund their retirement, but then swiftly deplete their account whenever they change jobs, making their nest egg balance a big fat zero. The lure of now is always greater than the future, but 401(k) plans should be set up to allow for a comfortable future. Never forget that.

6.  Failing to optimize tax breaks. This is more a missed opportunity than a mistake. Not enough people think about optimizing their entire investment portfolio as a whole. Retirement account assets grow tax free. Consider putting heavily taxed investments in a retirement account and leaving the tax efficient investments in taxable accounts.

While 401(k) plans are great for everyone who is able to participate, having one doesn't mean you are set for life. A comfortable retirement is still your responsibility.

Retirement Plans

Select this link Consulting Services

Select this link Qualified Plans

   Select this link Savings Calculator

   Select this link  401k

   Select this link Safe Harbor 401k

   Select this link Roth 401k

   Select this link SIMPLE 401k

   Select this link Profit Sharing

   Select this link Money Purchase

   Select this link Defined Benefit

   Select this link Cash Balance

   Select this link Successor Plan Rule

   Select this link IRC 401(a)

   Select this link ERISA 404(c)

   Select this link Prohibitive Transactions

   Select this link Fiduciaries

   Select this link Contribution Limits

   Select this link Controlled Groups

Select this link Other Plans

   Select this link IRAs

   Select this link 419(e)

   Select this link SEPs

   Select this link SARSEPs

   Select this link SIMPLE IRA

Other Links

Select this link Tests

    Select this link ACP Test

    Select this link ADP Test

Select this link Restatements

Select this link Amendments

Select this link Mistakes

Select this link Catch-up

Select this link Funding Limits

Select this link EGTRRA Q&A

Select this link Conduit IRA

Select this link Pricing

Select this link Quote

Select this link White Papers

Select this link FAQs

Select this link Glossary

 

 

Information is provided for review and consideration only. Please consult legal and tax advisors for practical advice pertaining to your business and personal situations.

Material in our newsletter may have been extracted in whole or in part from the IRS Employee Plans publication, and the presence of IRS material does not constitute or imply the endorsement, recommendation, or favoring by the IRS of any opinions, products, or services offered by the sponsor of this web page or document.

This page was last reviewed and/or updated on Friday, July 03, 2015 05:21 PM

 

Privacy Statement - Executive Benefit Plans, Inc. Copyright 1996 - 2015 All Rights Reserved - Legal Statement
Website Powered by UHSystems