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Are You Making These 5 Common Retirement Account Mistakes?

One of the great retirement savings [3] 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 [4] 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 [5], 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])