Nowadays, there are many options when it comes to planning for the future. Traditional pensions have become old news and new, more dynamic, retirement plans have replaced them.
But it can be a challenge to navigate the choices and money myths that surround these plans. This is especially the case when it comes to the 401K.
There are a lot of polarizing statements about this form of investing. If you have found it confusing to make sense of all of the different information out there, keep reading to find out what you should know about 401K plans.
Myth 1: There Are No Fees
There are no free lunches when it comes to the 401k. Fees vary depending on the sponsors and the size of the plan. Usually, the bigger the plan, the smaller the percentage of fees involved.
Who pays those fees also varies depending on where you work. Some employees may choose to cover these fees for you, while some do not.
What is worth knowing is that 401k sponsors are legally obligated to disclose their fees in regular statements, so keep an eye on these statements.
Myth 2: 401K Plans Offer a Variety of Investment Options
401K plans are quite limited in their investment choices. This is down to the selection of investments provided by employers. Because people misunderstand this fact, they often feel that their 401K doesn’t perform as they expected. This is mainly because they didn’t take the time to consider the option carefully.
Knowing that 401K plans are limited is not necessarily a disadvantage. Once you take the time to know what you’re working with, you can make very sound investment decisions based on the choices available.
Myth 3: A 401K Assets Are Guaranteed
It’s important to understand the mechanics of a 401K. It’s not some sort of “super pension plan”. The money is invested in the financial market and is subject to all of the same pros and cons that come with this type of investing.
Believing the above-mentioned myth has led many to make poor financial decisions, like overfunding their 401k.
Knowing the truth can help you consider additional investment options and stop overfunding your 401k.
Myth 4: Matching Is the Most Important Feature
This is a dangerous myth for two reasons.
1) Many believe that employer matching is enough to retire comfortably.
2) If the employer doesn’t match, then there is no point contributing to a 401K at all.
The truth is that matching is a great bonus, but it shouldn’t be the be-all and end-all of how you view your 401K and how you use it.
Debunking Money Myths
The 401K is a very useful instrument when used correctly. When used irresponsibly, it can cause more harm than good! One of the biggest reasons that people make poor financial decisions is due to poor financial education.
The world is saturated with money myths and it’s up to all of us to sepr¡erate the wheat from the chaff. So don’t let your finances and future be tainted by these common myths, staying alert to the truth is one of the best ways to protect your assets.
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