401(k) Mistakes That Can Cost You

NEW YORK (MainStreet) — Missing out on an employer 401(k) opportunity is the most obvious retirement savings mistake a worker could make. 401(k)s are an employee-sponsored savings vehicle. Contributions are made directly from someone's paycheck and, depending on the account type, are either taxed immediately or tax deferred.

While increasingly popular, 401(k) plans are not entirely foolproof. Here are seven common mistakes that people make with their 401(k) plans:

1.) Putting too much in your 401(k).

Yes, you can in fact put too much in your 401(k). Many people will pour as much money as they can into their 401(k) plan. But that's not always the best idea. 401(k)s may have expensive funds that will diminish your returns every single year. And even the tax breaks that accompany them may not be in your best interest in the long run. Tax rates are currently at historic lows and are likely to go up in the future. So, you might be taxed at a higher rate in retirement than you would be if you paid the income tax now.

To solve both of these problems, contribute enough to your 401(k) to take advantage of the employer match and then switch to traditional IRA and Roth IRA contributions. Once you max out an IRA, then decide whether it's best to contribute more to your 401(k) or a taxable account.

2.) Not making the proper spending decisions.

While putting too much money into a 401(k) can be detrimental, so is not being disciplined about contributing to your IRAs and taxable accounts. You need to deposit money into these accounts from each paycheck and increase your contribution amount every time you get a bonus or pay raise.

For those of you who know that you will spend every dollar that isn't automatically withheld from your paychecks, the company 401(k) is a much better savings vehicle for you because 401(k) contributions are taken out of each paycheck without fail.