6 ways you could be damaging your 401k

1. Not being matched? Don’t turn down free money. And you get free money if you contribute enough to trigger your company’s matching plan. Usually, this is about 3 to 5 percent of your gross. Figure out what corners you need to cut to make this possible. 2. Not maxing out? Contributing 5 percent is great, but if you can configure things to do better, you definitely should. Depending on your tax bracket and age, you can defer between $18,000 and $24,000 of your salary. Put in as much as you possibly can — and more if you and your spouse are both working.

3. Borrowing from yourself? It’s so tempting, but unless you’re in an absolute emergency situation, act as though your 401k is totally off-limits until retirement. You’ll be penalized and taxed for withdrawals and loans come with a high tax rate. If a big emergency expense does come up, you could consider using your credit instead. And most 401ks remain safe in bankruptcy proceedings. 4. Transferring/cashing out? If you’re switching jobs, don’t cash out your 401k or you’ll have to pay a 10 percent tax penalty. But don’t just roll it over into your new employer’s plan either. Consider opening a traditional IRA; there won’t be a penalty if you follow the appropriate procedures, and then you have much more investment freedom. 5. Not managing your portfolio? Keep 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? Don’t just fall asleep at the wheel and let good money get drained away by unanticipated market crashes.

6. Not diversifying? Don’t 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.