Opening a 401 (k) in your twenties was a big retirement savings mistake

• In my 20s, I thought a 401 (k) was my only option to save for retirement – so I opened one.
• I had no idea that my employer was not matching the contributions at all and that I could have opened a lower fee IRA instead.
• I didn’t contribute much anyway, and when I forgot the account after quitting this job, I realized I probably shouldn’t have opened it in the first place.
• A 401 (k) is a useful tool for many people to save for retirement, but it was not the best choice for me at the time.
• Use Blooom to analyze your 401 (k) today and see how you can increase your retirement savings »

In my mid-20s, I was too stubborn to worry about building up a pension fund and too obsessed with being able to pay my current bills to worry about saving for the future.

When I finally decided to open a 401 (k), I was around 26 and finally found it to be the biggest retirement savings mistake I have ever made. I’m not saying opening a 401 (k) was a mistake for everyone – I’m saying it was the wrong choice for me, at the time, with my goals and saving habits.

Now I know I should have done things differently, thanks to three signs that are clearer in hindsight.

1. My business does not match my contributions

After hearing so many of my friends and colleagues brag about the money they put in their 401 (k), I decided to open one.

Some companies offer what’s called a 401 (k) match, in which they make matching contributions up to a percentage of what the employee puts in, as an incentive to save. It’s basically free money, and experts recommend taking advantage of it if your business offers a match.

When I went to HR at my old company to ask for details, I was told that the company did not match any of the funds I had invested. I opened one anyway.

Brian Carney, a certified financial planner, says that if a company doesn’t provide a match in their 401 (k), an employee should take advantage of the flexibility that a traditional or independent Roth IRA offers.

“Many employer-provided 401 (k) plans will offer a very limited investment menu of high cost mutual funds. By leveraging an independent IRA platform, the investor would get the most out of the two worlds: an almost limitless universe of stock, bond and ETF investment options, plus much lower fees, ”says Carney.

Knowing that I didn’t have a 401 (k) match, I might have been better off opening an IRA instead.

2. I haven’t contributed enough to make a difference anyway

One mistake I admit I made with my 401 (k) was not putting in enough money to save for retirement.

As of this year, the IRS allows employees to contribute $ 19,500 to a 401 (k), plus an additional $ 6,500 for those 50 and over. Some financial advisers recommend putting between 10% and 20% of your gross annual income in your retirement accounts in order to have enough savings in the future.

At the time, I was only contributing around $ 1,000 to $ 1,500 per year to my 401 (k), which was not nearly 10% of my income. I had mismanaged my money to spend it on rent, credit card bills, and put the rest in savings accounts. I did not prioritize saving for retirement as a goal.

3. I forgot my 401 (k) for 5 years

Very soon after opening a 401 (k), I was fired from the last full-time job I ever had. I became independent and own my own small business. I immediately opened a SEP IRA, a basic individual retirement account for the self-employed, and completely forgot about my 401 (k).

It wasn’t until five years later, speaking with a friend, that I remembered that I had a 401 (k) and needed to do something with it. It turns out that I am not the only one who made this mistake.

“Investors routinely miss thousands of dollars in retirement by losing track of old accounts, leaving them in their old company’s 401 (k) plan,” Carney says. “We recommend that investors treat IRAs like 401 (k) cemeteries; whenever they leave a job, insert that 401 (k) directly into their own IRA to be sure it is still factored into their retirement planning. “

Once I remembered it existed, I rolled my 401 (k) into my SEP IRA and only have one retirement fund left to manage, verify and contribute.

This is the one I should have had from the start.