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Guest columnist
Ben Jacoby   Expert: Ben Jacoby
8 ways to mess up your retirement plan
Investing mistakes top the list, but there are plenty of ways to spoil your retirement plans
Guest columnist

8 retirement plan mistakes

Think of how important your retirement savings are. You can't afford to make many big mistakes -- especially as the years go by and you accumulate substantial sums of money in your tax-deferred retirement plans.

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One common mistake among risk-averse investors is to seek safety at the expense of growth. Putting all your money in a money market fund may keep it safe from volatility, but it won't help you stay ahead of inflation. You'll need to achieve growth in your plan. On the other hand, taking too much risk by choosing volatile investments is just as unwise, especially for people who are already retired or who plan to retire soon.

Smart retirement plan investing requires you to look at your individual situation so that you can properly balance safety with growth potential. And while the costliest mistakes are usually related to plan investments, you can make other mistakes that can create a royal mess.

Avoid these 8 mistakes:

1. Managing your investments in isolation
Many people look at their 401(k) or 403(b) plan, IRAs or other retirement plans as separate entities instead of integrating them as one total portfolio. By not seeing the forest for the trees, they don't correctly position their assets in their plans.

Here's an example. Suppose you decide to allocate 10 percent of your overall investments to real estate investment trusts, or REITs. If you have 25 percent of your 401(k) invested in REIT funds, you might think, "My 401(k) is overloaded with REITs. I'd better sell them now!"

Hold on a second.

Having 25 percent of your 401(k) in REITS would be perfectly fine -- in fact, optimal -- if it gets you to your 10 percent overall target. Let's say you have no REITs in your taxable account or your IRA. If you do the math, you may discover that you have a 10 percent overall allocation to REITs. You're right on target.

2. Putting the wrong investments in taxable vs. tax-deferred accounts
This is related to the point above. Generally, investments that produce high, fully taxable dividends should go into your retirement plans. Inside a tax-deferred plan, dividends from investments such as taxable bond funds and REITs won't cause any tax damage.

Conversely, investments that are designed to produce long-term capital gains, such as growth stocks, are generally best held outside of your retirement plan. They're tax-advantaged to begin with and don't need additional tax sheltering.

When you look at the whole picture, you can allocate investments across the appropriate accounts. You'll end up with an identical portfolio, but it will be positioned for maximum tax efficiency.

3. Not taking advantage of employer matching contributions
Most employers that offer a retirement plan will match your contribution up to a certain limit. For instance, your employer may match the first 3 percent of salary you contribute. If you contribute less than 3 percent, you're literally throwing away free money.

Next: "You can also sell individual holdings and use the proceeds."
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