• Skip to primary navigation
  • Skip to main content
Good Financial Cents®
Content is based on in-depth research & analysis. Opinions are our own. We may earn a commission when you click or make a purchase from links on our site. Learn more.
  • Make Money
    • Get Money Now
      • Ultimate Guide to Making Money
      • Need Money Now
      • Get Free Money Fast
      • Make Money Fast
      • Make $1K Per Month
      • Make $100 Per Day
    • Control Your Destiny
      • Self Employed Jobs
      • Make Money from Home
      • Hobbies That Make Money
      • How to Become a Freelance Writer
      • Small Business Ideas to Start
      • How to Become an Independent Contractor
      • Best Online Jobs
    • Passive Income
      • Passive Income Ideas
      • Multiple Streams of Income
      • Extra Income
      • Residual Income Ideas
      • Learn to Sell e-Books
      • Make Money on Facebook
      • Make Money on Tiktok
      • Best Online Survey Sites to Make Money
    • Explore More
      • Best Side Hustle Ideas
      • Make Money for Teens
      • Best Online Colleges
      • Best Jobs No College Degree
      • Become a Millionaire
      • Careers for the Future
  • Manage Money
    • Best Of
      • Budgeting Tools
      • Personal Finance Software
      • Best Cashback Cards
    • Company Reviews
      • Personal Capital vs Mint
      • Personal Capital Review
      • SmartAsset Review
    • Guides
      • Buy or Lease a Car
      • What is Liquid Net Worth?
      • Setting Financial Goals
      • How to Budget
      • Ways to Save Money
    • Explore More
      • How Much Car Can I Afford?
      • Best Auto Refinance Companies
  • Invest
    • Best Of
      • Best Short and Long-Term Investments
      • Best Low Risk Investments
      • Best Online Stock Brokers
      • Best Crypto Exchanges
      • Best Short Term Investments
      • Best Long Term Investments
      • Best Trading Platforms
      • Best Investment Apps
    • Company Reviews
      • Lending Club
      • Robinhood
      • M1 Finance
      • Ally
      • TD Ameritrade
      • Fundrise
      • Betterment
      • Etrade
      • Wealthfront
    • Guides
      • Investing for Beginners
      • Investing Small Amounts of Money
      • Investing in Real Estate
      • No Money Down Real Estate
      • Bonds vs Stocks
      • Peer to Peer Lending
      • Best Hedges Against Inflation
      • Safe Bitcoin Investing in 2023
    • Explore More
      • Bitcoin vs. Real Estate
      • Betterment vs Wealthfront
      • Investing for College Students
      • Stock Market Alternatives
    • By Investment Amount
      • How to Invest $100
      • How to Invest $1K
      • How to Invest $2k-$3k
      • How to Invest $5K
      • How to Invest $10K
      • How to Invest $15k
      • How to Invest $20K
      • How to Invest $30k
      • How to Invest $50K
      • How to Invest $100K
      • How to Invest $200K
      • How to Invest $500K
      • How to Invest $1M
  • Taxes
    • Best Of
      • Best Tax Relief Companies
      • Best Tax Software
    • Guides
      • Federal Income Tax Guide 2023
      • Taxes and Cryptocurrency
      • How to Do Your Own Taxes
      • How to Invest Your Tax Refund
      • Hiring a Professional Tax Preparer
      • Tax Tips for Freelancers
    • Company Reviews
      • TurboTax Review
      • H&R Block Review
      • Taxslayer
      • Tax Act
  • Insurance
    • Best Of
      • Best Life Insurance
      • Best Home Insurance
      • Best Auto Insurance
      • Cheap Term Life Insurance
      • Car Insurance For Young Adults
    • Guides
      • Term vs Whole Life
      • Different Types of Car Insurance
      • Average Cost of Car Insurance
    • Explore More
      • Life Insurance Over 50
      • Life Insurance Over 80
      • $1 Million Life Insurance
      • $2 Million Life Insurance
      • $3 Million Life Insurance
    • Company Reviews
      • Banner Life Insurance
      • Ladder Life Insurance
      • Health IQ
      • Haven Life
      • Policygenius
      • State Farm Auto Insurance Review
  • Retirement
    • Roth IRA
      • Best Places to Open a Roth IRA
      • Best Investments for Roth IRA
      • 7 Roth IRA Secrets
      • Roth IRA Conversion Guide
      • Roth IRA Rules
      • Roth IRA vs Roth 401k
      • Are Roth IRA Contributions Tax Deductible?
    • 401(k)
      • 401(k) Limits
      • 401(k) to Roth Rollover
      • Is 401(k) Enough for Retirement?
      • Maxed Out 401(k): What's next?
    • Traditional IRA
      • Traditional IRA Rules and Limits
      • Traditional IRA vs. 401(k)
      • Simple IRA Rules
      • SEP IRA Rules
      • How Much Do You Need to Start an IRA?
    • Explore More
      • SEP IRA vs. Roth IRA
      • 457 Plan for Successful Retirement
      • 401a Rollover Rules
      • How to Retire at 50
      • How to Retire at 55
  • Banking
    • Best Of
      • Best National Banks
      • Best High-Yield Savings Accounts
      • Best Checking Accounts
      • Best Savings Accounts
      • Best CD Rates
      • Best Money Market Accounts
    • Company Reviews
      • BBVA
      • Synchrony
      • Wells Fargo
    • Explore More
      • 9 Banking Alternatives for 2023
      • What is a Credit Union?
  • Home
    • Best Of
      • Best Mortgage Lenders
      • Best Mortgage Refinance Companies
      • Best Home Warranties
      • Best Homeowners Insurance
      • Best VA Loans
      • Best Mortgage Rates
      • Best Moving Companies
      • Best Home Security
    • Guides
      • Home Buying Checklist
      • Online Home Appraisal
      • How Much House Can I Afford?
      • First-time Homebuyer Programs
      • How to Get Approved for a Home Loan
      • Save Money When Building a House
      • How to Save for a Downpayment
      • When to Refinance Your Mortgage
    • Explore More
      • 15 vs. 30-year Mortgage
      • Home Warranty vs. Home Insurance
      • Veterans United Home Loan Review
      • Quicken Loans Review
      • HELOC vs Second Mortgage
      • DCU Mortgage Review
      • Costco Mortgage Program Review
      • USAA Mortgage Loan Review
  • Credit
    • Best Of
      • Best Credit Repair Companies
      • Best ID Theft Protection Services
      • Best Credit Report Options
      • Best Bad Credit Loans
    • Guides
      • How to Build Your Credit Score
      • How to Raise Your Credit Score in 5 Months
      • How to Dispute Your Credit Report
      • Hot to Remove Collections from Your Credit Reports
      • How Identity Theft Destroys Your Credit Score
    • Explore More
      • What is a Good Credit Score?
      • What is a Bad Credit Score?
  • Debt
    • Best Of
      • Best Debt Consolidation Loans
      • Best Personal Loans
      • Best Student Loans
      • Best Student Loan Refinance
    • Guides
      • What is Debt Consolidation?
      • How to Get Out of Debt
      • How to Get a Personal Loan Approved
      • How to Pay Off Student Loans Faster
      • Should I Consolidate My Debts?
      • Should I File for Bankruptcy?
    • Company Reviews
      • Credible
      • Sofi

10 Awful 401(k) No-No’s You Should Avoid

https://www.goodfinancialcents.com/wp-content/uploads/2019/07/MG_5503-150x150.jpg
  • Written By:
    Jeff Rose, CFP®

    Jeff Rose, CFP®

    Jeff Rose, CFP® is a Certified Financial Planner™, founder of Good Financial Cents, and author of the personal finance...

    Read More
  • Updated: September 3, 2021
  • 5 Min Read
  • Advertising Disclosure

    Advertising Disclosure

    GoodFinancialCents® has an advertising relationship with the companies included on this page. All of our content is based on objective analysis, and the opinions are our own. For more information, please check out our full disclaimer and complete list of partners.

Quality Verified THE GFC® PROMISE
shield check icon
Quality Verified

GoodFinancialCents® partners with outside experts to ensure we are providing accurate financial content.

These reviewers are industry leaders and professional writers who regularly contribute to reputable publications such as the Wall Street Journal and The New York Times.

Our expert reviewers review our articles and recommend changes to ensure we are upholding our high standards for accuracy and professionalism.

Our expert reviewers hold advanced degrees and certifications and have years of experience with personal finances, retirement planning and investments.

shield check icon
Why You Can Trust GoodFinancialCents®

GoodFinancialCents® partners with outside experts to ensure we are providing accurate financial content.

These reviewers are industry leaders and professional writers who regularly contribute to reputable publications such as the Wall Street Journal and The New York Times.

Our expert reviewers review our articles and recommend changes to ensure we are upholding our high standards for accuracy and professionalism.

Our expert reviewers hold advanced degrees and certifications and have years of experience with personal finances, retirement planning and investments.

Me: “Who helped you select the funds in your 401(k)?”

Client: “Ummm…..I just picked a few options really quick.”

Me:  “How much time did you spend researching what you picked?”

Client:  “I didn’t.”

Me:  <sigh>

This sort of exchange happens more often than it should.  What most investors don’t realize is that at some point, your 401(k) will most likely be the largest income-producing asset you own.

Sure your home could be worth more, but; the last time I checked your home doesn’t send you a monthly check when you retire.

There are several reasons why 401(k)s make sense for so many people. But the primary reason you should take advantage of your 401(k) is that once it’s set up there’s nothing much left to do (except the occasional review as I’ll discuss).

Your 401(k) can be automatically funded using your earnings at your job – you won’t have to remember to make contributions.

However, there are some 401(k) no-no’s I think you should avoid. And the sad part is that many people make these mistakes…don’t become one of them.

1. Not Saving at All in a 401(k)

If you have a 401(k) available to you and you haven’t taken advantage of it . . . why not? Again, once you have it set up, there’s not much left to do.


 

Investing within a 401(k) will help you automatically save for retirement without hardly thinking about it. Before you even have access to your spending money from your paycheck, your 401(k) contribution will be made. Easy peasy.

You need to start investing for retirement. Unless, of course, you like the idea of living on Social Security payments alone (that’s a scary prospect). Even if you’re wealthy, why not save even more for the future?

2. Just Saving Enough to Get the Match

Some employers offer a match up to a certain percentage of your contributions into a 401(k). This is a fantastic benefit you should certainly use – but you shouldn’t stop there.

Chances are you should invest more money into your retirement than what your employer will match in your 401(k). It would be a good idea to research how much money you need to retire and consistently contribute to that amount.

3. No Match, No Savings

Employers are not required to match your 401(k) contributions. If your employer isn’t matching your contributions, should you just skip investing into your 401(k)?

No. Of course not!

Remember, the 401(k) is a great way to automatically make contributions toward retirement. Take advantage of this super easy way to invest your money. It’s still worth it.

4. Investing Purely Into Target Date Funds

To put it lightly, I rather dislike target date funds. Many times, you’ll find target date funds as options within your 401(k).

Target date funds are funds that usually have a year at the end of the name – the year you might like to retire. The idea is that you choose a target date fund that targets the year you’d like to retire, invest in that fund, and watch that portfolio shift from an aggressive strategy to a conservative strategy.

This sounds dandy, but the problem is that the mutual funds within these target-date funds are usually pretty cruddy. How so? Here are two downsides you’ll often see:

  • High fees – The mutual funds just have outrageously high fees that are going to take money from you that you could have used to invest.
  • Weak performance – The mutual funds do pretty poorly when compared to other mutual funds or market benchmarks.

William Baldwin, a contributor for Forbes.com, writes:

Whoever is buying the [target retirement] funds would not be at the genius level. They have not figured out that they are getting ripped off.

When you invest in your 401(k), do your homework and find out about your investment options – don’t let your employer’s default choice be your choice unless it’s a good one (it probably isn’t).


 

5. Not Getting Professional Help Choosing Your 401(k) Investments

Okay, so if you’re supposed to pick the investments in your 401(k), how do you know which ones to choose? It’s best to hire a professional.

A good financial adviser can drill down into the specifics of the investments within your 401(k) and point out ways to improve your portfolio – and show you which funds you should avoid like the plague.

Don’t go it alone. Get good help and you’ll save more and earn more.

6. Asking Your Coworkers for Help Choosing Your 401(k) Investment Options

I can assure you that most of your coworkers haven’t given much thought into the funds within their 401(k). Get professional help, not the off-the-cuff recommendations of those who don’t live and breathe investments on a day-to-day basis.

Unfortunately, you might find yourself pressured to choose investments within your 401(k) during work when you need to be working, not making decisions about your long-term future.

Instead, spend some free time after work to sit down with a financial adviser who knows their stuff.

7. Not Reviewing Your 401(k) Plan Consistently

While the 401(k) plan is a great way to ensure contributions are made by having them come directly out of your paycheck, that doesn’t mean you can sit back, relax, and forget about your 401(k) altogether.

Instead, you need to review your 401(k) plan on a regular basis.

Should new funds become available within your 401(k), you’ll want to know about them and consider them as potentially better options for your investments. You’ll also want to consider the volatility of your investment mix as you get closer to retirement.

8. Borrowing from Your 401(k)

Borrowing from your 401(k) is definitely a no-no. I say this for two reasons:

  • You’ll make less money – Money not invested is money that’s not earning money. Taking money out of your 401(k) defeats the whole reason you put it in there in the first place!
  • You might find yourself paying extra penalties and taxes – If you don’t have enough money to pay back your 401(k) loan in time, your unpaid balance will be considered a distribution. That means you’ll be looking at a 10% penalty in addition to higher income taxes.

John Wasik, a contributor for Forbes.com, writes:

Repeat after me: My 401(k) is not a piggy bank, nor is it a good source of cash.

Don’t borrow from your 401(k). You should have an emergency fund in place for emergencies.

9. Market Timing With Your 401(k) Investments

Your 401(k) is a great long-term investment vehicle – but not something you should play around with as the market fluctuates.


 

Find the right funds with the help of a professional, reevaluate your funds from time to time, but whatever you do don’t let your emotions dictate your investment decisions.

10. Making Terrible 401(k) Decisions When You Leave Your Job

When you leave your job, whatever you do, don’t cash out your 401(k). Remember those penalties and tax implications if you take a 401(k) loan and don’t pay it back? Well, the same applies here.

However, I would encourage you to consider a Roth IRA conversion with your 401(k) after you leave your job.

Not only will that open up many more investment options than your old employer gave you, but throughout the process, you’ll learn a great deal about how investments work. Note, however, that while it’s worth considering, it’s not always the right thing to do.

Talk with a financial adviser to determine if a Roth IRA conversion is right for you.

401(k)s are a wonderful investment choice as long as you avoid all these no-nos. Do your research, invest with intentionality, and you’ll be just fine.

This post originally appeared on Forbes.com.

Facebook LinkedIn Twitter

About the Author

Jeff Rose, CFP® is a Certified Financial Planner™, founder of Good Financial Cents, and author of the personal finance book Soldier of Finance. He was a financial planner for 16+ years having founded, Alliance Wealth Management, a SEC Registered Investment Advisory firm, before selling it to focus on his passion - educating the masses on the importance of financial freedom through this blog, his podcast, and YouTube channel.


Jeff holds a Bachelors in Science in Finance and minor in Accounting from Southern Illinois University - Carbondale. In addition to his CFP® designation, he also earned the marks of AAMS® - Accredited Asset Management Specialist - and CRPC® - Chartered Retirement Planning Counselor.

While a practicing financial advisor, Jeff was named to Investopedia's distinguished list of Top 100 advisors (as high as #6) multiple times and CNBC's Digital Advisory Council.

Jeff is an Iraqi combat veteran and served 9 years in the Army National Guard. His work is regularly featured in Forbes, Business Insider, Inc.com and Entrepreneur.

Facebook Twitter LinkedIn

You Might Also Enjoy

What Happens When Your Bank is Seized by the FDIC?

What Happens When Your Bank is Seized by the FDIC?

How to Invest $200,000 and Generate a Solid Return

How to Invest $200,000 and Generate a Solid Return

Webull Review: Trade Crypto and Traditional Investments on the Same App

Webull Review: Trade Crypto and Traditional Investments on the Same App

How To Diversify Your Portfolio With Artwork In 2023

How To Diversify Your Portfolio With Artwork In 2023

10 Best Investment Companies in 2023

10 Best Investment Companies in 2023

The 8 Best Guaranteed Interest Investment Accounts for Your Money

The 8 Best Guaranteed Interest Investment Accounts for Your Money

7 Comments

  1. Geneva Goodman October 31, 2018

    I need to know if it has been 8/9 years since I’ve work , can I draw from it for housing ? I’ve been without a resresidence. Almost the entire time with zero income at this time. Please help me.
    Sincerely Geneva Goodman

    Reply
    • Jeff Rose October 31, 2018

      Hi Geneva – You can take the money but you’ll have to pay ordinary income tax on the withdrawal, plus a 10% penalty if it’s a 401k. The homebuyer exemption only applies to IRAs.

      Reply
  2. Chris Peach October 18, 2015

    Hi Jeff,

    What’s your opinion on investing in your 401(k) when you’re facing quite a bit of debt? Do you prefer your clients go down to the match, hold off all together, or take it case by case?

    Reply
    • Jeff Rose October 19, 2015

      @ Chris I typically tell people to start investing even if they have debt. For some people that have excessive debt, contributing the max to get the match might be too much. In those cases, I advise they invest something; 1%, 2%, etc.

      The logic is they’ll get some experience/exposure to investing and start to learn how it works. By the time they pay off a good chunk of their debt they’ll be able to invest more money with more knowledge and understanding.

      Reply
  3. Natalie @ Financegirl July 20, 2015

    As an attorney, it’s very uncommon to ever get an employer match. I never have! That said, I continue to use a 401k (even while I’m paying down my student loan debt)!

    Reply
  4. Isaiah July 15, 2015

    I do think borrowing from your 401K can be advantageous in certain situations. I had accumulated some credit card debt. I decided to borrow and pay off that high interest debt. I repaid myself back in six months. While it’s true that your money is not earning money when you remove it, the 401k earns money in the long run so paying it back in a short time frame is key.

    Reply
  5. Thias @It Pays Dividends July 15, 2015

    i work directly with our 401k program with my company and it is amazing the amount of people who don’t take full advantage. We offer the opportunity to meet with our plan advisors to better understand the offerings and very few take the opportunity. Some don’t even contribute to the match, which only requires 5%.

    We just continue to work on education to try and make sure everyone knows how important contributing is to their future.

    Reply

Leave a Reply

Cancel reply

  • Make Money
  • Manage Money
  • Invest
  • Taxes
  • Insurance
  • Retirement
  • Banking
  • Home
  • Credit
  • Debt
  • About
  • Contact
  • Facebook LinkedIn Twitter

© 2023 Good Financial Cents®. All Rights Reserved. | Privacy Policy | Disclaimer

All written content on this site is for information purposes only. Opinions expressed herein are solely those of AWM, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.

All third party trademarks, including logos and icons, referenced in this website, are the property of their respective owners. Unless otherwise indicated, the use of third party trademarks herein does not imply or indicate any relationship, sponsorship, or endorsement between Good Financial Cents® and the owners of those trademarks. Any reference in this website to third party trademarks is to identify the corresponding third party goods and/or services.