Often times, people leave extra money on the table when it comes to work even though there is free money available. Don’t let this be you. Many businesses and organizations offer 401k plans (or 403b plans) to their employees. Each company is different, but the majority will match your contribution up to a certain amount. Make sure you’re taking advantage of this.
Top 3 Reasons to Contribute to Your 401k
Here are my top 3 reasons to take advantage of a qualified plan with your employer:
- Businesses often will match your contribution, up to a certain percent. This is free money from your employer and you should take full advantage of it.
- When you make a contribution to your 401k, you’re most likely using pre-tax dollars, which means you could potentially defer your taxes for each year you contribute to your 401k
- When you retire, you’re going to want to have some money and I’m not so sure that Social Security is going to cut it.
Avoid These 5 Mistakes
Make sure to avoid these common mistakes that people make.
- 401k Loans: Don’t take a loan from your 401k. Any defaulted loans can result in major tax issues.
- Timing the Market: 401ks are set up for the long term, where you can pretty much count on about 10% a year over time. Don’t try to time the market. You’ll most likely fall below 10% if you do.
- Contributing Only the Matched Amount: The average American will need to save about 10% throughout his career in a 401k in order to have enough money at retirement. The average American only contributes 6%, leaving them short at retirement.
- Investing in the Company Stock: Diversify your assets. No matter how confident you are in the company you work for, don’t put everything into one basket. Instead, I usually recommend an indexed fund, which follows the market.
- Not Enrolling: Well this is probably the biggest mistake anyone could ever make. Take advantage of free money from your employer, tax benefits, and more by contributing to your 401k plan.
Take Advantage of Free Money from Your Employer
So you have access to a 401k? Are you maximizing its potential? If not, get in touch with your HR department at work and start getting free money from your employer.