IRAs and taxable accounts tend to be more “available” to creditors, so make sure you’re safeguarding some money in your employer plan.
1. Potentially high expense ratios
While this is becoming less of a problem than it used to be, there can be some sneaky underlying expenses associated with your retirement plan. Many 401(k)s come with unnecessarily pricey investment options, and some include frivolous administrative fees.
For the investment options in your plan, you’ll want to find the “expense ratio” associated with each choice, which is the fee you’ll pay to invest money in that particular fund. Attractive expense ratios run less than 0.15%, and some can be as low as 0%. However, many expensive investments can charge 1% or more.
If your plan is laden with miscellaneous charges or unusually high expense ratios, you’ll want to think twice about contributing the annual maximum if you have other options — like a Roth IRA or taxable account.
2. Matching contribution invested in company stock
Some plans will quietly invest matching contributions into company stock instead of investing it proportionally across your current investment allocation unless you tell your employer otherwise. This doesn’t seem quite right to me, because when the company does this, it is making a choice about your investments on your behalf. Unless you want money invested in your company’s stock — rather than broad-market, low-cost index funds — be sure to proactively correct this if it happens at your company.