10/23/2013 05:17 pm ET Updated Dec 23, 2013

401(k) Tricks and Treats

While Halloween can be scary, many folks are more spooked by the challenge of saving for retirement than they are of things that go bump in the night. There's no need to call Ghostbusters, but you might want to check out your 401(k). Inside your workplace retirement plan, you may find several "treats" designed to help you meet your savings goals. But watch out. There may be a few "tricks" to avoid so you're not haunted in retirement.

Let's start with the treats:

  • Tax-deferred contributions. With a traditional 401(k), contributions are made on a pre-tax basis and taxes are only due when you eventually withdraw money from your account. This means you're paying less in upfront taxes and socking something away for the future.
  • Employer match. Your neighbors aren't the only ones offering up goodies. Chances are your employer may match at least some of your 401(k) contributions. Make sure you contribute at least enough to get the full match.
  • Investment advice. Many 401(k) plans offer investment advice and I encourage you to take advantage of it. Our data shows that people who took advantage of independent, professional 401(k) advice tended to increase their savings rate, were better diversified and stayed the course in their investing decisions.*

And, don't fall for the tricks:

  • Loans. A 401(k) loan might seem like an easy cash fix, but you might feel its ghost for years to come. Borrowing from your 401(k) should always be a last resort. These loans are repaid with after-tax dollars and usually come with tax penalties if you leave your job and can't repay the full balance.
  • Improper diversification. Whether you're investing in your 401(k) or collecting candy, mixing it up can be a good thing. Make sure your portfolio is properly diversified across different asset classes and don't load up on too much company stock no matter how tempting it may be.
  • Starting too late or saving too little. Even if retirement isn't knocking at your door just yet, the sooner you start stashing away your cash, the better. While many workers prioritize paying off debt or saving for a child's education, your first priority should be contributing at least enough to get the full amount of any 401(k) match.

Lastly, you may have heard about fees lurking in your 401(k) plan. Fortunately, recent regulations have treated us to greater transparency. Read those fee disclosure statements carefully and check to see if your plan offers lower-cost investment options like index mutual funds. Having this information and the support of a financial professional can help you on your way to a sweet retirement. Happy saving!

* In-depth behavior analysis of point-in-time advice provided through 401(k) plans serviced by Schwab Retirement Plan Services, Inc., 2010. Retirement plan investment advice is formulated and provided by GuidedChoice Asset Management, Inc. (GuidedChoice®), which is not affiliated with or an agent of Charles Schwab & Co., Inc., Schwab Retirement Plan Services, Inc. (Schwab), or any of their affiliates.

Schwab Retirement Plan Services, Inc., Schwab Retirement Plan Services Company, and Charles Schwab & Co., Inc. are separate but affiliated companies and subsidiaries of The Charles Schwab Corporation. Brokerage products and services are offered by Charles Schwab & Co., Inc. (Member SIPC). Schwab Retirement Plan Services, Inc. and Schwab Retirement Plan Services Company provide recordkeeping and related services with respect to retirement plans. (1013-7413)