7 Ways Youre Messing Up Your 401k

7 Ways Youre Messing Up Your 401kA 401k can be a magical thing. Its a tax shelter available to fruchtwein every American that can offer great returnsparticularly if you have a matching program to take advantage of. But you may not know all there is to know about this personal financial tool. googletag.cmd.push(function() googletag.display(div-gpt-ad-1467144145037-0) ) Read up on a few ways in which you might be messing with the goose that wants to lay your golden eggs, and make sure youre not doing any of unterstellung things1. elend Being MatchedIt seems obvious dont turn down free money. And you get free money if you contribute enough to trigger your companys matching plan. Usually, this is about 3-5% of your gross. Figure out what corners you need to cut to make this possible, and then smile your way to the bank.2. Not Maxing OutContributing 5% is great, but if you can configure things todo better, you definitely should. Depending on your tax bracket and age, you can defer betwee n $18k and $24k of your salary. Put in as much as you possibly canand more if you and your spouse are both working.3. Borrowing From YourselfIts so tempting, but unless youre in an absolute emergency situation, act as though your 401k is totally off-limits until retirement. Youll be penalized and taxed for withdrawals and loans come with a high tax rate. And remember if a big emergency expense does come up, you could consider using your credit instead. Worst case scenario, most 401ks remain safe in bankruptcy proceedings.4. Transferring/Cashing OutIf youre switching jobs, dont cash out your 401k or youll have to pay a 10% tax penalty. But dont just roll it over into your new employers plan either. Consider opening a traditional IRA there wont be a penalty if you follow the appropriate procedures, and then you have much more investment freedom.5. Not Upping Your ContributionEvery time your pay rises, automatically increase the size of your 401k contribution. Try living on your old sa lary and putting the whole difference away for retirement. This helps you avoid lifestyle creep and means you can retire earlier and better.6. Not Managing Your PortfolioKeep and eye on your allocations. Are you investing too much or too little in stocks? Are you risking too much or too little? How close are you to the golden retirement age? Are you being the right amount of careful for where you are in your career? Dont just fall asleep at the wheel and let good money get drained away by unanticipated market crashes.7. Not DiversifyingDont just put all of your 401k in one fund, particularly if your 401k is your primary investment source. Try to cover four categories index, growth, international, and bonds. This will spread out your risk and keep your portfolio diverse. And make sure to choose funds with low fees (i.e. expense ratios of less than 1%).