How to fund your 401(k) safely for your retirement

Consumerist has three common mistakes...but neglect a few things we've noticed when we look in our statement.

1. A 401(k) account is NOT a substitute for financial planning. Your other obligations - rent, bills, debt, funding emergency accounts - come first. Then, any discretionary income you have left over you can put into your retirement fund.

2. 401(k) funds have fees - which is why 401(k) administrators encourage you to put money into the retirement account. Even if you do nothing, your 401(k) administrator can slice anywhere from 0.5% to 2% of your account in various fees. 2% may not seem like much, but if you manage to save $1 million for your retirement account, $20,000 gets sliced off for such mundane things as reports, research, pressing the RETURN button, etc. All that company match goodness...down the toilet.

3. Contribute only what you can afford. You can save up to the $15,500 limit in your 401(k), but most people save around 6% to receive the optimum company match. After the $15,500 is met, the company match ends - you can still contribute but you won't get any further company match from your employer. Don't be the idiot who saves 30% of their salary in their 401(k) and end up being short on your rent, bills, etc.

4. Remember the ages of 59.5 and 70.5. Those are the ages when you can withdraw funds. Younger than 59.5 - 10% IRS penalty if loan not paid back in 5 years. Older than 70.5 - 50% on difference of minimum distribution if not selected. In between - no penalties, but may select to take all or minimum.

5. If you don't know how to invest, don't contribute to your 401(k) until you have a clear idea what your goals are, what risk you're willing to take, and how much you need. Don't fund your account just because Suze Orman and Jim Kramer tell you to; all that extra money goes to fees and maintenance. Unless you know where you're going, and have everything mapped out, the money "on the table" from your employer might as well be set ablaze if your investment decisions and contributions sink like a rock.

6. Matched contributions from your employer DOES NOT EQUAL "free money." Another thing that the financial gurus proclaim is the biggest thing about 401(k) accounts is that if you don't contribute, it's leaving money on the table. Hogwash. Matched contributions are not free - they are an appreciation of your service from your employer, sometimes in lieu of other compensation (e.g. an employer may give you a profit sharing bonus in your account rather than a bonus check, scalped in half by taxes). If your work ethic is bad, you're a slacker on the job and only exist for a paycheck, you're stealing that 401(k) match that a harder-working employee could use to supplement their accounts. That "free" money can also be eaten up by fees and penalties if you're not careful. A better way of considering a company match is as an encouragement - not a reward.

Discussion to be continued...