Don’t Make These 401(k) Mistakes

Relatively few people have pensions to look forward to in retirement these days, so if you’re fortunate enough to have a 401(k) plan available to you through your job, aim to make the most of it. And avoid these costly blunders:

• Failing to participate: The worst 401(k) mistake is not having one. You might amass hundreds of thousands of dollars for retirement via a 401(k) plan, but not if you don’t sign up for one or contribute to it regularly.

• Not maxing out the match: At a minimum, contribute enough to get all available matching dollars that your employer may offer.

• Not contributing aggressively: To build a hefty account, you should be making sizable contributions each year. For many people, even 10% of income may not be enough. Crunch your own numbers to see how much you need to sock away regularly to reach your goals.

• Borrowing from your account: Any money you take out for a few years will not be working to grow for you, shrinking your account’s future value.

• Cashing out early: Letting money grow for many years in a 401(k) can build a valuable nest egg for retirement. Don’t short-change your future by cashing out when you leave a job. Roll that money into your new employer’s 401(k) plan — or into an IRA.

• Investing too conservatively: Typically, 401(k) plans offer a limited number of investment options, most rather conservative. Read up on your choices and choose the ones that should serve you best. If you’re still many years from retirement, for example, you might stick entirely or mostly with stocks, as they tend to offer higher returns over the long run. An S&P 500 index fund is a great choice for stocks.

• Not designating beneficiaries: Prevent future headaches by specifying who gets your 401(k) assets when you die. Update your beneficiaries as necessary, too.

Learn more about 401(k) accounts and retirement tips at Fool.com.