3 Things to Watch Out for When Investing in a 401k

I'm Tyler, a former financial advisor and portfolio manager. If any of this is helpful, sign up for my free weekly newsletter by clicking the link in my bio.

1. Limited Investment Options

First off, you might be stuck with whatever investment options your employer picked. You can pick from those available options, but you can't choose others. Double bummer: the more options your employer gives you, the more expensive it is for them. If your options suck, ask your employer today to stop being such a cheapo and give you some low expense ratio total stock market funds!

2. Hidden Fees

The fees can quietly eat you alive. If the options are limited, you might wind up in funds that have really high expense ratios—anything above 0.2% is concerning. And let's not forget account fees and plan admin fees. Usually, your employer takes care of the admin fees while you work for them, but once you leave that job, those fees are on you, and they add up quickly.

3. Locked-Up Money Until Retirement

Remember, with a pre-tax account like a traditional 401k, your money is locked up until age 59 and a half. Uncle Sam will charge a lovely penalty if you dare touch it earlier. Make sure you're balancing what you want to spend on now with what you want to spend on later.

Conclusion

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