You might be making a few mistakes with investing in your 401k that could cost you a lot of money. Unfortunately, your employer and HR department aren’t of any help so it’s up to you to understand these things about your 401k. I’ve made a few of these and they’ve cost me thousands of dollars that I’ll never be able to get back.
In this video, I’ll go through some costly 401k mistakes that you should make sure to avoid.
Check Out My Recommendations (It helps support the channel):
🔥 M1 FINANCE Investing- Free $10 (once you deposit at least $100 within 30 days)
Here’s a video on how to use M1 Finance
📝 Empower (previously called “Personal Capital”)- Free Net Worth Tracker & Retirement Planner
🔒 AURA – 14 day free trial to see if your personal information has been leaked online
💎 WEBULL – Up to 12 Free Stocks When You Deposit Any Amount Of Money
💵 ROBINHOOD – 1 Free Stock
Join the Private Financial Independence Community for monthly private live streams, video calls (with myself and the community), as well as access to a discord group where we talk all things money (and a lot more):
📧 Business Inquiries: JarradMorrowYT@gmail.com
YOU’LL FIND THESE PLAYLISTS HELPFUL:
🏆 Financial Independence Retire Early Playlist:
💸 Side Hustle Playlist To Help You Make More Money:
💵 All Things Investing Playlist:
📈 M1 Finance Playlist:
📕 Learn How To Budget Playlist:
📲 Follow me on Instagram:
Affiliate Disclaimer: Some of the above may affiliate links. Support the channel by signing up or purchasing through those links at no additional cost to you. I appreciate you for helping me keep this channel running
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. If you need help then contact a Certified Financial Fiduciary before trying anything that is mentioned in this video. I prefer a Fiduciary financial advisor that charges an hourly fee as opposed to an ongoing fee based on a % of your portfolio. Always remember that incentives determine the type of advice they give you so one that charges an hourly fee is less likely to be problematic.
#401kInvesting #401kExplained #Roth401k…(read more)
LEARN MORE ABOUT: 401k Plans
REVEALED: Best Investment During Inflation
HOW TO INVEST IN GOLD: Gold IRA Investing
HOW TO INVEST IN SILVER: Silver IRA Investing
Investing in a 401k plan is a popular way to save for retirement among American employees. These plans allow workers to make pre-tax contributions, and the money is invested in a variety of funds or individual stocks. However, there are some truths about 401k investing that many people are not aware of or are too afraid to talk about.
First, while 401k plans are marketed as a great way to save for retirement, they are not always the best option for everyone. Depending on your personal financial situation, there may be other investments that provide higher returns or lower fees. It’s important to consider all of your options before investing in a 401k plan.
Second, the fees associated with 401k investing can be significant and can eat away at your savings over time. According to a study by the Center for American Progress, the average American pays about $138,000 in 401k fees over their lifetime. These fees include administrative costs, expenses for managing the plan, and investment fees. It’s crucial to read your 401k plan’s prospectus to understand the fees associated with your investments and to choose low-cost options.
Third, 401k investing is not a guarantee of retirement security. The stock market is volatile, and even the most experienced investors can’t predict its performance. Whether you’re investing in a 401k or other retirement accounts, it’s essential to have a diversified portfolio that includes both stocks and bonds to minimize risk.
Fourth, withdrawing money from your 401k before retirement age can result in hefty penalties and taxes. Although you may have the option to borrow from your plan or withdraw funds early, it’s best to avoid doing so unless absolutely necessary. The money you save in a 401k is intended for retirement, and early withdrawals can significantly decrease your long-term savings.
Finally, it’s important to revisit and adjust your 401k investments regularly. The investments that make sense for you now may not be the best choices in five, ten, or twenty years. As you get closer to retirement, your investment strategy may need to shift to a more conservative approach to protect your savings.
In conclusion, while 401k plans can be a valuable tool for saving for retirement, there are some truths about investing that are not widely discussed. Understanding the fees associated with your investments, the potential risks involved, the penalties for early withdrawals, and the need to adjust your strategy over time can help you make smarter investment decisions and secure a comfortable retirement.
solo 401k is the best 😉
Jarrad, could you talk about where we find the 401k admin fees?
Really informative. I am 23 and want to reach FI and want to retire early. My employer offers both options of contributing to my 401K pre-tax or ROTH. I'm still not sure I understand but, would you recommend splitting it 50/50? In this video, you said that if you are trying to reach FIRE then, it might make more sense to do pre-tax. Can you explain that more? or do you have another video that touches on that closely?
Thx Jarred! My employer doesn’t offer and retirement at all. I do however have a traditional IRA. just sitting there. Also I’m maxing out my Roth. Can I also contribute to my traditional IRA since I can’t contribute to a 401k or HSA? My deductible isn’t high enough for that. Thx so much!
About Dave Ramsey's bad advice on paying off all debt except mortgage before investing….there's a certain advantage to doing that particularly when the market declines. Leverage is always a two way thing. Yes losing some matching money can be potentially painful but as you pointed out, the money isn't yours until you stay with the employer long enough to be vested anyway. Mathematically, Dave Ramsey's advice of paying off smallest credit card balance as opposed to the highest percentage credit card first after making all minimum payments does not make sense. Psychologically, for those whom need his advice, it works. The rest of his advice is pretty bad as you probably already noticed. I bet his bad advice was one of the motivations to start this channel.
Great video
Jarrod Morrow Great video. I just have a question: I already put in the full match of my employer (6%) but still haven't maxed out my HSA, should I do that or keep increasing my 401K contributions by 1% per year? Definitely looking forward you hearing your take, thanks.
Ted
What’s the difference between 401k and 403b?
My company offers a Traditional and Roth 401k. Should I still get a Roth IRA?
Thanks for the advice again… I learned today that my company does have a 401k, so I'll look into the details of it outlined in this video.
My employer 401k is thrift savings plan and I am still confused where to have my money go.
@ 2:15 Company stock can be a great asset especially if at a discount. As a rule one should limit company stock to ~10% of their retirement allocation. Investor should aim to max their 401(k) @ 19,500 as soon as possible, not 1% year or only with a raise.
.
Chart @ 8:40 fudges the numbers: 10 year average annual return is usually listed as net of Expense Ratio meaning that the E.R. has already been subtracted before the "16.5%" or "16%" is shown. The important issue is that high E.R. exacts an expensive toll in the long run that costs you thousands of retirement dollars and that the return from the last 10 years has absolutely no impact on how well it performs in the future.
.
@ 9:45 100% stock / retiring in 32 years: recommendation of 0% Bonds is very aggressive (32 yrs notwithstanding) and not suitable for most people especially if they don't understand their risk tolerance. Folks tend to believe they have a high risk tolerance in a bull market. The 42% I, 34% L, 24% S may be high in international and overweighs small caps.
Great video, Jarrad! I had never heard of Blooom before, so I tried them out. I had a big relief that my fees were not that bad considering. I mean, they aren't Vanguard low, but they are reasonable. I also liked their projection graphs. Looks like I will easily be a millionaire even with a bad market just sticking with my current course. I plan on being debt free in August, so I will max out retirement and have a Roth IRA maxed as well after getting out of debt. That would put me in multi-millionaire status according to the graph, even with a poor market. Bloooom had me on a high risk track, but I think I will stick with my moderate risk approach on investing. It seems to ride the waves pretty well.
I agree with you that Dave Ramsey has not helped people with his investing advice. He also gives bad advice on mutual fund investments. However, I do agree with him on his debt reduction strategies. I think the debt snowball is a good way to pay down debt. And I understand his one size fits all approach is about getting "gazelle intense" about paying down debt. But I don't agree that you can't do things simultaneously. If you only needed one year to pay off debt, then sure, halting your retirement investments might be a good strategy to just knock it out and reorient your goals. But most people require several years to get out, and all that lost time and free money from matches can never be made up.
Excellent info on employer contributions taxed vs. Roth IRA. Thanks for the clarification. Keep blowing it up. #fire ~nicknsandra
Just ran a blooom analyst on my employer 401(K) and holy sh*t!!! What a eye opener! Fees, Risk and Diversification thru the roof! Love the content man! Thank you for sharing! Sub to your channel
Smashed the like button for Molly
Awesome video Jarrad. I've recently subscribed and have been going through your videos and they've been very helpful.
Question: I recently rolled over money from a 401k and 403b into a traditional IRA since I don't have a job at the moment. Because this money was pre-tax money, I know I'd have to pay taxes now if I wanted to roll it into a Roth IRA. Because my income is technically 0, can I pay whatever taxes on it now (since I'm in the lowest bracket), and roll it over into a Roth? My thinking is that I can avoid paying higher taxes when I roll it over after I get a regular income. Thanks!
I learned about the vesting before I left my old job. I had plans on moving cities and I literally quit my job to move a few days after becoming vested. I asked my HR beforehand to make sure I knew EXACTLY when I would be vested and I didn’t move until i was completely vested! I got lucky! I would have lost over $7,000!
My big mistake is that I haven't put anything in my 401K in like 10 years. But, these are great tips.
Thank you Jarrad for the very informative and educational video! I will be looking into my 401K portfolio and investments to ensure I am getting the best bang for my buck for sure.
No offense man, but you don't fully understand Dave's advice on this.
this video is very helpful. i smashed the like button 🙂 what about stock shares where stocks of the company is part of your compensation? my friend had an offer from a big company for 111k, but rejected because she had a better offer from someone else. the said company then counteroffered by offered 135k base salary and 50k worth of stocks, while the second, less big cmopany offered 160k. which one is better? also, would you own stock of a huge company such that even in a weighted total market index fund, they are one of the top players?
Hey Jared can you do a video on ESSP. Want to know what approach you would take with these plans. Thanks.
Great video…I almost missed investing a little extra…we can put 40 hours of our PTO (paid time off) in our 403b at work…I earn a little over 7 weeks off each year and have a hard time using it…short staffing a t hospital…plus it will save me some tax $
Thanks
Great video man! I actually just learned the other day if you have your 401k with Fidelity that you may have an investment option that's called "Brokerage link" where you open up a separate brokerage account within your 401k that gives you access to any other fidelity funds that weren't apart of your original investment options! It's pretty nice if your work 401k investment options are all high fee funds. The only catch is you may have a quarterly fee associated to this brokerage account but it could be well worth it if you then get access to lower fees funds!
Agreed on investing up to the match. That’s the number one thing I dislike about Dave’s plan. Money Guy show has a solid plan.
Super helpful video Jarrad. One mistake you didn't mention is worth adding: Don't forget to make investment selections once you've directed money into your 401k! Some people don't realize that unless they take action to make investment choices, their contributions are likely going into a very conservative investment by default.
It's really atrocious that Dave Ramsey tells people to NOT get free money from company match when they're paying down debt. He really said that, and it's advice worth ignoring. You're right on to encourage people to at least contribute to get match if at all possible; not doing so is just like walking past hundreds or thousands of dollars on the sidewalk and not stopping to pick it up.
great video, Jarrad. This summarizes really well a lot of the research I have done the past several years.
Jarrad, I think you misspoke at the 7:00 minute mark. At 6% with 50% match, you have to invest $3600, to get the $1800 match .
(Watching as I comment) Great advice. Looking back I wish I had known what expense ratios were and of course I wish I had invested more. I also wish I had looked into understanding what the funds were made up of that I selected through work… hadn’t heard of Bloom..
Luckily my previous employer had no vesting period for my 401k match.