Retirement Plan Mistakes To Avoid

Planning for retirement effectively takes time. People should also be aware of what they need to do in order to develop a retirement plan that will work for them instead of against them. This means being aware of the many possible retirement mistakes that can be committed that would render any plan useless.    Here are some of the more common mistakes to avoid.

Not Being Part Of A Company’s Retirement Plan

Company sponsored retirement plans give employees the chance to set aside more funds for retirement. But employees also have to do their share by giving out regular contributions to the retirement plan which the company will match. But gone are the times when it is the company that takes care of everything. Employees have to make sure that they are enrolled in the retirement plan. Failure to do so can result in missing out on a good opportunity to prepare for retirement.

Taking Loans Out Of Your Retirement Plan

While taking out loans from your retirement plan seems like a good idea, it can be a grave mistake. Some may believe that borrowing against your retirement plan is a good thing to do since the interest on the loan eventually gets paid on your account. But the fact of the matter is it can also limit the growth prospects of your plan. The interest paid on the loan can also be taken as added spending since they come with certain charges that are being paid with after-tax dollars. Not only that, you are also likely to pay taxes in those charges again when you finally take out the funds during your retirement.

Cashing Out A Retirement Plan Prematurely

Cashing out on a retirement plan is usually being made by people who experience working for another company. Cashing out the retirement plan is preferred since it may be the easiest thing to do instead of trying to roll it out on the new company’s retirement plan. This can be a mistake since there can be penalty charges as much as 10 percent of the fund that the employee will need to pay when the retirement plan is cashed out prematurely. Moreover, one might need to pay income taxes on those funds when they are cashed out.

Owning Too Much Company Stock

Some employees consider taking on as much of the company stock as they can as part of their retirement plan. One key reasoning for this is that employees are given the opportunity of lower premiums in owning such stock for being part of the company. But it can be a mistake since the employee may be trying to put all the eggs in one basket.

Even though an employee may have great belief in the success of the company, he or she may be putting the retirement plan at an undue risk. In case the company flounders, the employee not only suffers the devaluation of the stock, it might also affect the potential growth of the retirement plan. A better idea would be to diversify some of the investments on other stocks and not just bet it entirely on company stocks.

 

Posted by Ardent Editor on Oct 26 2011 in 401k & Company Plans Tags: , , , , , ,

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