©Veronica Karas

You might think you’re doing everything right when it comes to your finances, but there are often money mistakes you are making that you don’t even realize. And, unfortunately, these “invisible” money mistakes could be sabotaging you without you even realizing it.

GOBankingRates spoke with Veronica​​​​ Karas, CFP, senior financial advisor at CAPTRUST in Lake Success, New York, about five not-so-obvious money mistakes you could be making.

Not Maxing Out Your 401(k) Contributions

Many people feel that they are making the most out of their 401(k) if they contribute enough to receive the full company match offered, but you shouldn’t stop there if you can afford to contribute more. Ideally, you should contribute the maximum amount, which is $22,500 for 2023.

“It’s important to contribute as much as you can, because once the tax year is gone, you never get it back again,” Karas said. “If you miss it, you can never contribute those dollars. If you only put away $6,000 and you had the opportunity to put away $30,000 — which, if you’re over age 50 this year, you can — that’s a huge gap in both [retirement savings and] tax savings. Maybe it would have even pulled you into a lower tax bracket.”

Because of compounding interest, you miss out on an ever greater amount than the current face value of the dollars you don’t invest.

Not Taking Advantage of Roth Accounts Early in Your Career

Many young people don’t think too much about retirement savings, so the thought of opening a Roth 401(k) or Roth IRA may not even cross their minds. But when you’re young, and typically earning less than you will at the peak of your career, it’s the best time to contribute to a Roth account.

“It’s slightly less advantageous later on,” Karas said. “The earlier you are, [in addition to gaining more] compound growth, you can pay the [lower] taxes now and then you never pay them again. If you retire at age 65, [there’s a big difference between whether] you have $1 million pre-tax or $1 million dollars raw. The actual tangible difference is over $450,000 in terms of real spending dollars, because when you withdraw it on pre-tax dollars, you have to pay taxes on every dollar.”

Not Including Inflation in Your Retirement Planning Calculations

When you plan for how much income you will need in retirement, it’s common to overlook inflation.

“I think people just don’t realize how much it erodes purchasing power over time,” Karas said. “People oftentimes think, ‘I spend $5,000 a month now, I need $5,000 a month in retirement.’ That’s not true. You need the inflation-adjusted version of $5,000 in today’s dollars. Whatever you’re investing with has to at least keep pace with inflation for you to maintain purchasing power. It’s also the problem with keeping too much cash.”

Not Considering Taxes When Planning for Retirement

Like inflation, taxes are another financial consideration that often flies under the radar when retirement planning.

“A lot of people ignore tax efficiency,” Karas said. “You might be making the right investments, and you might even be trying to max out all the different types of accounts. But [you could be] forgetting little things like, do you have taxable bonds versus municipal bonds? Or, what are the tax implications of your asset allocation?”

Another mistake is assuming you will be in a lower tax bracket when you retire.

“A lot of people think, ‘Down the line, I’ll definitely be in a lower tax bracket,’” Karas said. “But if they stash a lot away into 401(k) [plans] and [other] tax-deferred vehicles, but they end up in the same — or even sometimes higher — tax bracket in retirement because of all the tax-deferred growth, [they may end up owing more in taxes than they accounted for].”

Not Making a Plan for Company Stock Options

If your company offers stock options but you don’t fully understand how they work, you can easily miss out on this benefit simply through inaction.

“People often don’t have a well-thought-out strategy for exercising or selling their stock option,” Karas said. “It’s one of those ‘use it or lose it’ types of things because they always expire. I’ve met a lot of people who, because they don’t understand how stock options work and they only understand that it’s going to cost them from taxes when they exercise them, just let their stock options expire and never do anything with them. It’s literally just lost dollars.”

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