Don’t Make These Mistakes with Your 401(k).

If you’re one of the few, smart workers (only about 33%) who invest in a 401(k) plan, good for you. But there are some basic things that you should avoid if you want to give yourself a shot at better returns. This is the topic of a great article I read today on TheStreet.com by Lauren Tara LaCapra.

The piece goes on to state some of the common mistakes that a lot of 401(k) investors make, such as picking the wrong funds, not keeping an eye on their accounts and not rolling over their plans when they change jobs.

It then gives some intelligent advice on how to get the most from your 401(k). Here are 5 things to do.

1. Contribute more
If you’re not putting in enough to get the most from your employer’s matching funds, then you’re walking away from a lot of money. And if you don’t make “catch-up” contributions, then you’re really leaving money on the table. Remember, for 2008, the maximum contribution is $15,500 if you’re under 50 and $20,500 if you’re 50 or over.

2. Strategize and then track performance
Make a PLAN. And then follow it to a T. If your plan offers life-cycle funds, check them out to see if they fit your needs. They could be a good alternative to you just guessing what to invest in.

3. Let your old employer know your new address
Duh, seems to be common sense. But you’d be surprised how many 401(k) contributors don’t do this, and then lose out on their 401(k) plans.

4. Don’t withdraw money from your 401(k)
If you take money out of your plan - either as a loan or to help with a hardship - that’s money that’s not working for you at that moment. Sure, you CAN take loans out against your 401(k), but in the long run it’ll really hurt your account. So, if you really need the money, see if there are other ways to get it - legally.

5. Stay away from the taxes you can avoid
Yes, you can get taxed on 401(k) plans if you don’t follow the rules. Like, don’t deposit more than you’re allowed to deposit. And when you’re moving money from one plan to another, roll it over. Don’t take it out of one plan and then directly deposit it into your new plan. Remember, your 401(k) is your responsibility. So, learn the rules and stick to them.