401k Plans: Set and Forget?

401k plans are often touted as a reliable way to secure your retirement, but a “set and forget” mentality can lead to several pitfalls. Here are five common mistakes investors make with their 401k plans and how smart investors can avoid them.

1. Ignoring Required Minimum Distributions (RMDs)

Starting at age 73, account holders must take RMDs. Missing these withdrawals can result in penalties of up to 50% of the required amount. Set reminders or consult a financial advisor to ensure compliance and avoid penalties.

2. Overreacting to Market Fluctuations

Market volatility can be unsettling, but changing 401k investments in response to short-term shifts can harm long-term goals. Stick to a long-term strategy and avoid reacting to temporary market dips.

3. Missing Catch-Up Contributions

To “top off” 401k plans, those aged 50 and older can contribute additional dollars beyond standard limits—every year.

4. Overlooking Roth Options

A Roth 401k allows for tax-free withdrawals in retirement. If you expect to be in a higher tax bracket later, paying taxes now with a Roth 401k might be beneficial. Roth decisions may be related to catch-up contributions, too.

5. Using Target Date Funds

Target Date Funds (TDFs)automatically rebalance as you approach retirement, but they can involve complex fees and may not align with changing retirement dates. Review your investment choices periodically and consider alternatives that might better fit your actual retirement plans.

Your financial advisor should help you with your 401k plans. In fact, some financial advisors have tools to help manage your “held away” assets like employer-sponsored 401k plans. Actively managing your 401k is always better than using the set-it-and-forget-it approach to funding your well-deserved retirement.

JL Bainbridge family wealth advisors are fiduciaries with a duty to act first and foremost in their clients’ interests.

Whether it’s to further explore 401k management or see how your financial plans and retirement plans line up, JL Bainbridge’s Free Financial Review might be something to consider.

To learn more about JL Bainbridge, call (941) 356-3435 or visit jlbainbridge.com.

Disclosure: This information is for educational and informative purposes and should not be considered a recommendation. Investment advisory services are only available to those who become our clients through a written agreement. JL Bainbridge is a registered investment adviser. J.L. Bainbridge & Co., Inc., is not a broker dealer and does not offer tax or legal advice. Please consult your tax or legal advisor for assistance regarding your individual situation. Registration of an Investment Adviser does not imply any level of skill or training. It should neither be assumed that future results will be as profitable or that a loss could not be incurred. For more information on our firm and our investment advisor representatives, please review our Form ADV, Privacy Notice, and Form CRS at jlbainbridge.com and reference the SEC website for more information on the firm and its advisors: https://adviserinfo.sec.gov/firm/summary/108058. Identifying the SEC as our regulator does not imply any level of skill or training.    AR0624