Common Mistake: Underestimating the Importance of Investing

A big mistake many people make is that they underestimate the importance of putting money away, no matter how small the amount is that you have to invest. You should sign up for your employer’s 401(k) retirement savings plan as soon as you’re eligible, even if you can only put away one or two percent of your paycheck. As you receive salary increases and bonuses, you should consider raising your contribution level.

Common Mistake : Cashing out Your 401(k)

Another mistake to avoid is cashing out your 401(k) if you leave the company. If you do, you’ll pay taxes and a premature distribution penalty. One option is to transfer your 401(k) to your new employer’s plan.

Tip: Transfer 401(k) Funds into an IRA

Another option is to transfer the money from your 401(k) to an IRA, a process that is known as a rollover of your account. By rolling over your 401(k) to an IRA, you won’t pay taxes or a penalty on the transfer.

Common Mistake: Investing Too Much in Employer's Stock

Many employees make the mistake of investing too much money in their employer’s stock. If your employer runs into financial problems, the stock is likely to go down in value. Worse yet, you also lose your job. The recently enacted Pension Protection Act makes it easier for you to sell company stock in a 401(k) and diversify your investment.

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