401(k) plans are among the best ways to save for retirement. Employers provide this benefit to their employees during their tenure in an organization. A 401(k) plan involves employees adding a certain amount to an account that grows tax-free over time, alongside contributions from their employer. However, certain mistakes like prematurely withdrawing funds or not checking the balance regularly can affect the benefits associated with one’s 401(k) plan,  

Using the funds early

Employees tend to have access to their 401(k) fund. Accessing the fund before they turn 59 and a half years old means a 10% penalty will be levied above the income tax owed to the distribution. Employees in desperate need of money can withdraw it through hardship withdrawal schemes or loans, which also come with added fees.

Because of these reasons, exhausting the funds of one’s 401(k) plan earlier than scheduled negatively impacts their long-term savings potential. 

Switching jobs before becoming vested in one’s 401(k)

Several employers add matching funds to an employee’s 401(k) along with the employee’s contribution. This double saving gives employers an added incentive and motivation to save more money. The matching amount is usually a percentage of the employer’s contribution. So, for example, if an employee contributes 8 percent of their salary to their 401(k) fund, then if the employer agrees to match up to 50% of this amount, the employee will receive a periodic contribution of 4% of their salary as the employer contribution. This matching amount is subject to a vesting period.  This  effectively means that an organization’s employees must stay in the company and work there for a certain number of years before they can take advantage of this benefit. Employees who leave the organization before completing this vesting period will miss out on a decent to large amount of money and will only receive the amount they have contributed to their 401(k) fund.

Not increasing one’s contribution amount over time

Many people just set up a 401(k) and then forget about it.  This  is a mistake as people can genuinely increase their savings by revisiting their 401(k) funds every time they get a promotion (meaning an increased salary) or a bonus  of any kind  from their work. Financial experts advise people to save and invest about 15% of their pre-tax income in any savings or investment plan.  By periodically increasing one’s contribution to this fund when one gets a raise, people can ensure  that they   do not fall behind  on their savings goals later in life.  For this reason, individuals must increase their contributions as their salary increases each year, which will help boost their future savings steadily.

Checking one’s balance every day

401(k) funds grow slowly over time and take many years to become a  large-sized  investment for most people. This delayed growth can discourage people  if they  have the habit of checking their balance regularly.   As a result, they might feel  less motivated  to contribute to their 401(k) account.