Biggest 401k Mistakes That Will Ruin Your Retirement

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A 401k is a retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes aren't paid until the money is withdrawn from the account, typically after retirement.

There are two main types of 401k plans: traditional and Roth. In a traditional 401k, your contributions are made with pre-tax dollars, which can lower your taxable income and, by extension, your taxes in the year you contribute. The money grows tax-deferred, but you'll pay taxes on withdrawals in retirement. A Roth 401k works a bit differently: contributions are made with after-tax dollars, meaning there's no initial tax benefit. However, withdrawals in retirement are tax-free, provided certain conditions are met, which can be advantageous if you expect to be in a higher tax bracket in retirement.

One of the key benefits of a 401k plan is the potential for employer matching. Many employers will match a portion of your contributions, essentially providing free money towards your retirement savings. The specifics of how much an employer will match can vary widely from one plan to another.

Your 401k allows you to choose from a selection of investment options, typically including a variety of mutual funds that invest in stocks, bonds, and money market instruments. The idea is to grow your retirement savings over time through these investments. It's important to consider your investment choices carefully, taking into account your retirement goals and risk tolerance.

There are limits to how much you can contribute to your 401k each year, and these limits are periodically adjusted for inflation. For people over 50, catch-up contributions are allowed, enabling older workers to contribute additional amounts to their 401k to make up for years when they might not have saved enough.

Finally, while a 401k is a powerful tool for saving for retirement, it's also subject to certain rules and restrictions regarding withdrawals. Early withdrawals before age 59½ may be subject to taxes and penalties, although there are exceptions for specific situations. As such, it's typically recommended to think of your 401k as money locked away for retirement, to avoid eroding your future financial security.

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Disclaimer: This video is for entertainment purposes only. Everyone's situation is different so do your own research before making any decisions with your money.

[tmh]

Great vid, as always! To shed some light on rolling a Trad IRA into a current employer's 401k, YES, I am actually doing this right now so as to have a $0 balance in all Trad IRAs so that I can continue to do backdoor ROTH conversions annually. In my case, I verified with my current 401k provider (Fidelity) that they accept Trad IRA rollovers. So, I'm rolling my Vanguard Trad IRA into the Fidelity 401k, which clears the path for backdoor ROTH since I'll now have $0 Trad IRA balances.

Pro Tip: you MUST have a $0 balance in ALL of your Trad IRA accounts (no matter how many you have, or who they are with) by December 31 of the year you did the ROTH backdoor conversion, otherwise you'll still trigger Pro-Rata. Hope this helps!

[CaedenV]

My company had a 5 year vested plan. Year 4-5 was rough lol. Right after my year 5 there were some changes and now it is a 3 year plan and I was like.... Oi. Probably wouldn't have pushed through that rough patch.

[p.alexander]

Great useful information. Thank you for creating a video, sir. I do have one question for you tho. In what order should you max out your HSA, Roth 401K, and Roth IRA? For example, my employer does offer a Roth 401K and HSA program. So I usually max out my HSA and Roth 401K first, after that if I have some money left over I contribute to my Roth IRA. Any advice would be greatly appreciated.

[cur]

I max out my 401k that way every raise I get is actually a raise because I can decrease my % contribution.

[jacobjacobson]

How often should we transfer our HSA’s from the one we are forced to use with our company to one we want to use like fidelity?

[freedomring]

worse advice I ever heard on YouTube was someone telling people to stay away from investing in a 401(k) ... the video was horrific to watch ... if your goal was to lose all your money then go watch that video ... however if you want to do well with your 401(k) watch this video ... once again Jarrad, great video. Keep 'em coming.

[TheDistrict]

Great information! Question - would it be smarter to increase your ROTH vs. 401K each year if you have not been able to max out your Roth yet?

[abr]

Before I retired last summer, I had plans to roll my lump sum pension into my 401k instead of an IRA to mitigate the pro rata rule impact. Unfortunately, this was prohibited by the 401k administrator because it was not in the contract with my company. So I rolled the lump sum pension into a traditional IRA which caused me to pay taxes on the back door Roth transaction. No big deal. The back door Roth and the mega back door Roth are worth doing regardless of the pro rata rule.

[-mz]

Talk about the 1 year break in as well! We would like to know about it

[antillie]

Yes you can roll a traditional IRA into a traditional 401k if the 401k plan allows it. Not all do but mine does.

[Locknar]

Gets tricky when the choices in your 401k aren't as clear cut, or you have to make the least bad choice, ex. my 401k has some consistently better performing funds, that charge over .25 in fees, while others have lower fees, but tend to under perform, and there's no campaign that's going to change that.

[datpham]

Hello I watched your Roth IRA video. Like & learn a lot. I’m about to open Roth IRA with Robin Hood. I like s&p 500 index, ETF and international stock index. I couldn’t find it in Robin Hood. What do you recommend at Robin Hood? Thank you

[homeaudiobasics]

You absolutely need to pay attention to what options are available in your employers 401K.
Previous job had 25 target date olans that all had lost 15-27% over the past 10 years, and one that averaged 3% over the past 10 years. The cash sweep acct paid 4.2% so i left it all there.

I really wish all employers gave full self direct options.

[Bur]

I always thought it was Ross IRA and people were just talking with a lisp

[brandonunruh]

You brought up 401k fees and I’m slightly confused by it. Help me out here.

While yes I agree you want to go as low as possible….don’t you have to take the funds return into exception?

For example in my 401k I do have an option to invest in a S&P fund at a low .05 expense ratio. But the historical return average since inception is 13.08. There is a growth fund that has a historical return average since inception of 17.60 but the expense ratio is .52

Are you telling me I’m still better off with doing the fund with the lowest expense ratio?

[fd]

Another fine video. How's Molly?

[amuseinthecraftroom]

I turn 50 next week....I get to max everything again lol.

[carwashesandotherfunvideos]

I am currently contributing 10% but my employer matches 2% of annual earned income. Should I not try to max it out Abd out the money elsewhere?

[Carsonkcooper]

I currently pay a front loaded fee of 2.5% and then an additional 1% fee in the fund itself. Any thoughts on this? Simple IRA plan for my employer.

[maxcohn]

16:06 that's a wise grandpa right there!