Are You Making These 5 Common Retirement Account Mistakes?

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Retirement PlanOne of the great retirement savings tools is the tax-advantaged account. Accounts like the 401(k) and the IRA can help you save for retirement, and reap tax advantages at the same time. Your tax-advantaged retirement account can provide you with a great way to save up money for retirement, putting your capital to work for you and building wealth. These accounts are easy to use, and make saving up for the future fairly simple.

However, even though tax-advantaged retirement accounts are relatively easy to manage, it is possible to make mistakes with them. As you contribute to your retirement account, here are 5 common retirement mistakes to avoid:

1. Not Starting as Soon as Possible

The biggest mistake in any retirement savings plan is to not start as soon as possible. The earlier you start, the more time compound interest can work on your behalf. Getting started is a major part of retirement savings, and putting it off only means you fall further behind. Along with this is the idea that you should max out your retirement accounts if you can. Even if you can’t max out your contributions right now, you can create a plan to work up to it.

2. Leaving Money on the Table

Another issue comes with leaving money on the table. If your employer offers a match, you should take it, up to the maximum allowed. Find out what sort of match is available, and then do what you can to contribute as much as you can in order to increase your contributions. That’s free money that can go toward building your nest egg.

3. Withdrawing Money Early from Your Retirement Account

Taking money from your retirement account early can trigger penalties and taxes. In the case of a Roth IRA, you can withdraw your contributions without penalty, but this still might not be the best idea. Even if you get a retirement account loan and the interest you repay is to yourself, withdrawing money is a bad idea. Once that money is out of your account, it is no longer working for you, and there are opportunity costs.

4. Failure to Properly Identify Beneficiaries

Don’t forget that your retirement account will have to go to someone if something happens to you. Make sure your beneficiaries are properly identified. If you have a major life event, you should change your beneficiaries. Many people forget to identify new beneficiaries after a death in the family, or after a divorce. It’s important that you review your plan regularly and make sure that your beneficiaries are updated.

5. Neglecting to Regularly Re-evaluate Your Portfolio

Even though might think that you’re set, you should consider that your needs change as you near retirement. Additionally, some investments might not be working as well in your portfolio as they did formally. If this is the case, you will need to rebalance your portfolio, and even switch out some investments. Make sure you periodically revisit your portfolio to ensure that you are on track, and to tweak its composition if needed.

(Photo: s_falkow)

{ 6 comments, please add your thoughts now! }

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6 Responses to “Are You Making These 5 Common Retirement Account Mistakes?”

  1. DachsieLady says:

    “One of the great retirement savings tools is the tax-advantaged account. Accounts like the 401(k) and the IRA can help you save for retirement, and reap tax advantages at the same time. ”

    Dear Jim,

    This article is not a help to your readers. It is a stumbling block.

    The entire concepts of “retirement” and “retirement savings” are crumbling right before our eyes. And that’s the truth!

    401k’s and IRA’s are being raped and pillaged as I type.

    Jobs that pay enought for us to have retirment savings are being raped and pillaged as I type.

    And our entire tax system and tax contributions are being raped and pillaged as I type.

    People need to take their penalities NOW and get out of these bankster financial instruments.

    I cannot say where best to put their money but we can rule out U S dollars and other bankster toxic paper.

  2. Tak Nomura says:

    It’s true that many 401k’s are being taken away (raped), but that doesn’t take away the worker’s responsibility to save for retirement.

    Starting early to save for retirement is the key.
    Other rules of investing are:
    1. Invest regularly to average cost your investments
    2. Buy low and sell high (always) When the market tanks, don’t sell.
    3. Balance your investments between equity and bonds; when young favor equities, and rebalance to favor bonds as you get older.
    4. Have faith in the US economy; that’s the only game in town. However, it’s okay to have a portion of your investments in international funds.
    5. Don’t ever try to time the market; it’s impossible. Stay for the long-term. However, I have done the following. When the market hit 14,000, I sold 37% and repurchased my funds when it hit 8,500.
    I sold 50% of my it bond funds last June, because a) the returns were not keeping up with inflation, and b) our economy was on a steady growth mode, and c) while Europe was having currency problems in too many countries.

  3. JoeTaxpayer says:

    Beautiful list, Miranda. If I may add a point – Retirement accounts should have their own beneficiary designation on the account itself. If a 401(k) or IRA passes via the will and not by designated beneficiary, the ability to take withdrawals over one’s life is lost. So one should have an annual review, at tax time, if they wish, to confirm the beneficiaries on each and every account are still whom they wish.

    • Miranda says:

      Thanks underscoring the importance of naming beneficiaries on the accounts themselves. I meant it, but wasn’t strong enough in my expression of the fact that naming them in wills isn’t enough. If your will says one thing, and the account beneficiary is someone else, it will go to the person listed as a beneficiary.

  4. Kenny says:

    Enjoy all of the profits and gains in 2012 since we will be a basket case written up for many years in 2013. Maybe it will be attributed my many to the end of the Mayan Calendar and the curse of “13”, but if Obama stays, he will push more programs for the poor, and steal away from the people ‘actually paying real tax dollars’.

    This will take more investments away from the US markets, reduce % of US GDP Share to Worldwide GDP (my measure of US success), and reduce the value of the $ (bringing inflation even higher).

    We will see 6 and 8 oz cereal boxes, and smaller than 1 gallon of milk containers very soon to combat the ‘no so sharp shoppers’. With oil continuing to stay around $4 and job growth to be zero (for the true tax paying community), we will see some serious suffering soon.

    So, sock away into Retirement funds to the max + some more, and defer taxes when we become in the 10% or lower bracket, and then withdraw that money. But, ensure that you put the investments into non-US-markets, unless you can do well with picking the top and bottom (rare). Chindia, LATAM and Aus/Can are some potential strong regions with its own set of issues, but at least those issues are not related to Debt being greater than annual GDP (like PIIGS – see on Google).


  5. Harold - CA@SPWCA says:

    Yes, all common and people forget them all in common! People shall not only save up enough money to possibly last up to 30years but also have to learn about taxes, investing, plus all the rules that go along with them.

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