401k day: Here's what that means and mistakes to avoid

·Reporter

September 6, 2019 at 9:14 AM·5 min read

National 401k Day — which is September 6 in 2019 — was created as a play on the concept that Monday kicks off the week with labor and work week ends with retirement.

The best way to celebrate the day is to learn more about this common retirement savings path. Yahoo Money connected with financial attorney and debt expert Leslie H. Tayne, Esq. to give you the 411 on your 401k.

What is a 401k?

A 401k is a common retirement savings plan sponsored by an employer. A 401k allows employees to contribute a portion of their paycheck to their retirement savings pre-tax. Named for the section of tax code that was created in the 1980s to complement pensions, the 401k gives the employee the option of how their money is invested.

According to a survey by TD Ameritrade, less than 40% of Americans can answer basic questions about 401k plans. It’s nearly impossible to make the most of something you aren’t completely comfortable with, so being educated on 401k plans is an important first step.

Jim Hummel color illustration of mechanic trying to fix car labeled "401k". (Photo: Bay Area News Group/Tribune News Service via Getty Images)

Mistakes to avoid in 401k investing

Waiting to start investing: When you’re starting out, retirement can seem like light years away — especially when you’re in your 20s and milestones like marriage and/or children aren’t on your short-term radar.

“One of the most common mistakes in 401k investing is delaying starting to invest,” Tayne said.

When you’re earning a consistent paycheck for the first time in your life, Tayne acknowledged there are competing interests for your money like paying off student loan debt and treating yourself to a vacation. But the interest on 401k plans compounds. So the earlier you begin to invest, the more time your money will have to grow.

If you haven’t been the best saver, you can still make up for the lost time by maxing out your 401k contribution. Tayne suggests that it’s worth sitting down with your company’s HR department or supervisor, express that you’re looking to sock away money, and ask if they’re willing to work with you to set up a plan.

“You can look for high-interest savings accounts or other investments that you can start on your own,” Tayne noted.

Thinking 401k investing is one size fits all: Financially speaking, targets and goals are great. But fixating on a particular percentage or number can derail your progress. When deciding how much to contribute, there’s no magic number or percentage.

“Ideally, you want to be putting away what you can, especially early on, you want to try to maximize those pre-tax dollars,” Tayne said.“Unfortunately, there isn't necessarily a direct formula because 401k investing looks at the totality of an individual’s finances to create an investment strategy.”

She continued: “When you're young, you want to decide what it is you're trying to accomplish and by when. If your goal is to pay off your student loans or pay off your home mortgage, then you may want to not put as much money away because your goal is to be liquid.”

Craig Pursley color Illustration of sailboat "401 Kay" with tattered sail tossed on monetary waters. (Photo: The Orange County Register/Tribune News Service via Getty Images)

Getting complacent: A 401k is not a set it and forget it type of investment tool. Many employees set their contribution at a percentage commensurate to their lifestyle when they first enroll in the plan and then lose track of it.

Financial windfalls like salary raises or a surplus from paying off student debt contribute to your income and should be calculated when weighing how much to contribute to your 401k.

“It’s important to get in the habit of regularly checking on your contributions to determine whether you’re contributing as much as possible based on your financial situation,” Tayne advised.

Withdrawing early for the wrong reasons: Emergencies are a fact of life. But when a bind leaves you short on cash, resist the temptation to withdrawal from your 401k before retirement.

An early withdrawal not only means you’ll be charged a 10% penalty and be taxed on your withdrawal, but it will also upend the progress you’ve made and derail your future progress.

“Withdrawing from your 401k can be a viable option to help you in a financial bind, but it’s important to consider the costs and the impact it will have on your long-term goals,” Tayne said. “It’s a decision that should be taken very seriously and not simply used as an easy way out of a bad situation.”

Failing to use your employer match: The idea of all of this is to make your money work for you. Tayne says it’s important to remember that “an employee match isn’t a rite and there’s no guarantee that your next employer will extend you the same benefit.”

Seize the opportunity to have your money grow and secure your future.

Stephanie is a writer for Yahoo Finance. Follow her on Twitter @SJAsymkos.

Read more:

Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, SmartNews, LinkedIn,YouTube, and reddit.

Associated Press
China says US is 'playing with fire' after latest military aid for Taiwan
The Chinese government protested Sunday the latest American announcements of military sales and assistance to Taiwan, warning the United States that it is “playing with fire.” U.S. President Joe Biden authorized Saturday the provision of up to $571 million in Defense Department material and services and in military education and training for Taiwan. Separately, the Defense Department said Friday that $295 million in military sales had been approved.
TODAY
Here’s what to do if you win the Mega Millions jackpot
The next drawing for the Mega Millions jackpot of $8325 million will take place December 20 Here's what to do if you win.
Associated Press
Isolated Chicago communities secure money for a coveted transit project before Trump takes office
Adella Bass dropped her in-person college classes because it was just too hard to get there from the far South Side of Chicago, where the city's famous elevated train doesn't run. The Biden administration notified Congress last week that it would commit $1.9 billion toward a nearly $5.7 billion project to add four new L stations on the South Side, the Chicago system’s largest expansion project in history. The pledge, which the Federal Transit Administration is expected to formally sign before President Joe Biden leaves office in January, essentially locks in current and future funding.
AFP
Minorities fear targeted attacks in post-revolution Bangladesh
For generations, the small Hindu temple outside the capital in Muslim-majority Bangladesh was a quiet place to pray -- before arsonists ripped open its roof this month in the latest post-revolution unrest."My son saw the flames and doused them quickly," said temple custodian Ratan Kumar Ghosh, 55, describing how assailants knew to avoid security cameras, so they tore its tin roof open to enter.
Associated Press
Winter is hitting Gaza and many Palestinians have little protection from the cold
Winter is hitting the Gaza Strip and many of the nearly 2 million Palestinians displaced by the devastating 14-month war with Israel are struggling to protect themselves from the wind, cold and rain. There is a shortage of blankets and warm clothing, little wood for fires, and the tents and patched-together tarps families are living in have grown increasingly threadbare after months of heavy use, according to aid workers and residents. Shadia Aiyada, who was displaced from the southern city of Rafah to the coastal area of Muwasi, has only one blanket and a hot water bottle to keep her eight children from shivering inside their fragile tent.
CBS News
NYPD chief resigns amid sexual misconduct claims
NYPD Chief of Department Jeffrey Maddrey has resigned following allegations of sexual misconduct, the department says.
Associated Press
As flooding becomes a yearly disaster in South Sudan, thousands survive on the edge of a canal
Long-horned cattle wade through flooded lands and climb a slope along a canal that has become a refuge for displaced families in South Sudan. “Too much suffering,” said Bichiok Hoth Chuiny, a woman in her 70s. Such flooding is becoming a yearly disaster in South Sudan, which the World Bank has described as “the world’s most vulnerable country to climate change and also the one most lacking in coping capacity."
CNN
Two US Navy pilots eject safely over Red Sea after fighter jet shot down in apparent friendly fire incident
Two US Navy pilots ejected safely after their fighter jet was shot down over the Red Sea on Saturday in an apparent friendly fire incident, US Central Command said in a statement.
AFP
Iraq's prohibition zeal threatens Baghdad's boozy subculture
The smell of dampness rises through the dust at a private club in central Baghdad, one of many shut in a crackdown on alcohol sales in Iraq.Several private "social" clubs that have operated in Baghdad for decades were sent official letters in November forbidding them from manufacturing and serving alcoholic beverages.
Associated Press
Two US Navy pilots shot down over Red Sea in apparent 'friendly fire' incident, US military says
Two U.S. Navy pilots were shot down Sunday over the Red Sea in an apparent “friendly fire” incident, the U.S military said, marking the most serious incident to threaten troops in over a year of America targeting Yemen's Houthi rebels. The U.S. military had conducted airstrikes targeting Yemen’s Houthi rebels at the time, though the U.S. military’s Central Command did not elaborate on what their mission was and did not immediately respond to questions from The Associated Press.
AFP
Tunisia women herb harvesters struggle with drought and heat
On a hillside in Tunisia's northwestern highlands, women scour a sun-scorched field for the wild herbs they rely on for their livelihoods, but droughts and rising temperatures are making it ever harder to find the precious plants.Wildfires fuelled by drought and rising temperatures have ravaged these woodlands, further diminishing the natural resources that women like Soudani depend on.
AFP
Trump threatens to take back control of Panama Canal
Incoming US president Donald Trump on Saturday slammed what he called unfair fees for US ships passing through the Panama Canal and threatened to demand control of the waterway be returned to Washington.He continued that if Panama could not ensure "the secure, efficient and reliable operation" of the channel, "then we will demand that the Panama Canal be returned to us, in full, and without question."
Politico
Trump taps billionaire Houston Rockets owner Tilman Fertitta as Italy ambassador
Fertitta has never held political office but is a longtime GOP donor — including to Trump’s Save America PAC.
Associated Press
The water was their livelihood. Now Thailand's sea nomads work to preserve a vanishing way of life
When Hook was a child, he started his days by jumping off the boat that his family lived on and into the ocean. Now Hook, whose full name is Suriyan Klathale, lives on land like the rest of his community, a people known as the Moken. The recollections of his childhood, which many Moken of his generation still have, are mostly just memories.
Associated Press
Fleeing motorist is dead after driving into Texas shopping mall and injuring 5
A fleeing motorist drove a pickup truck into a busy JCPenney store in Texas on Saturday, injuring five people before he was fatally shot by law enforcement, authorities said. Four of the injured people were taken from the Killeen mall to hospitals and the fifth went on their own, Sgt. Bryan Washko of the Texas Department of Public Safety said in an evening media briefing. Ofelia Miramontez of the Killeen Police Department said the incident began with calls about an erratic driver in a black pickup in Belton, about 20 miles (30 kilometers) away.
Reuters
Trump says he might demand Panama hand over canal
President-elect Donald Trump on Saturday accused Panama of charging excessive rates for use of the Panama Canal and said that if Panama did not manage the canal in an acceptable fashion, he would demand the U.S. ally hand it over. In an evening post on Truth Social, Trump also warned he would not let the canal fall into the "wrong hands," and he seemed to warn of potential Chinese influence on the passage, writing the canal should not be managed by China. It also underlines an expected shift in U.S. diplomacy under Trump, who has not historically shied away from threatening allies and using bellicose rhetoric when dealing with counterparts.
AFP
In ruined homes, Palestinians recall Assad's torture
School lessons ended in Syria's biggest Palestinian refugee camp on October 18, 2012, judging by the date still chalked up on the board more than a decade later.According to the United Nations agency for Palestinian refugees, UNRWA, at the start of Syria's conflict in 2011 it was home to 160,000 registered refugees.
CNN
How a teenager’s holiday romance led to prison time in Dubai
British citizen Marcus Fakana, 18, is facing a one-year prison sentence for his summer romance with a London teenager, 17, who he met while on holiday in the United Arab Emirates.
Politico
Biden could foil Trump’s plans to resume federal executions
The president is considering using his clemency power to convert federal death sentences to life in prison.
NBC News
Lara Trump says she's removed her name from contention to be Florida's senator
Lara Trump, President-elect Donald Trump's daughter-in-law, said on Saturday that she decided to remove her name from consideration to be a senator in Florida.

What is a 401k?

Mistakes to avoid in 401k investing

Latest Stories