In these modern times it has become very rare to hear that someone enjoys a traditionally defined-benefit pension, which led many U.S. citizens to switch to 401(k) and in that way ensure funds for their retirement days. However, except not having a 401(k), which might be the worst mistake, there are some common mistakes people make regarding this contribution plan that can really damage their nest egg. Here are some of them, along with tips on how to avoid making them.
1. Cashing out your funds before you should. This is a common mistake people make when they are in a tough financial situation. This money might help you momentarily, but it will cause problems for you in the long run. You will have to pay taxes for the money you withdraw, as well as a 10% penalty fee. Besides that, you will spend the money you were saving for old age. If you spend it now, what will you have when you grow old? Try to forget that this money exists and don’t think of it as something you can spend. If there is anything you can do besides withdrawing these funds before it’s time, make sure you do it. According to Judith Ward, a financial planner in Baltimore, even if you are in debt, your funds in the retirement plan are protected and creditors cannot access them, so it is best for you to keep those funds safe in the plan and try to earn money to pay off your debt.