12 Surprising 401(k) Mistakes People Make All the Time

Reveal the shocking 401(k) blunders that could be robbing you of your golden years.
Updated May 8, 2024
Fact checked
confused senior woman using laptop

We receive compensation from the products and services mentioned in this story, but the opinions are the author's own. Compensation may impact where offers appear. We have not included all available products or offers. Learn more about how we make money and our editorial policies.

A 401(k) is likely an important part of your retirement plan, but are you maximizing it to its full potential?

There may be things you’re doing that you can catch now to help you avoid making foolish mistakes with your 401(k).

Here are a few 401(k) issues you can avoid to help you get back on the right financial path.

If you’re over 50, take advantage of massive discounts and financial resources

Over 50? Join AARP today — because if you’re not a member you could be missing out on huge perks. When you start your membership today, you can get discounts on things like travel, meal deliveries, eyeglasses, prescriptions that aren’t covered by insurance and more.

How to become a member today:

  • Go here, select your free gift, and click “Join Today”
  • Create your account (important!) by answering a few simple questions
  • Start enjoying your discounts and perks!

Important: Start your membership by creating an account here and filling in all of the information (Do not skip this step!) Doing so will allow you to take up 25% off your AARP membership, making it just $12 per year with auto-renewal.

Become an AARP member now

You haven’t signed up for your employer’s 401(k) plan

nyul/Adobe senior man stressed at laptop screen

One of the most important things you can do is sign up for your employer’s 401(k) plan.

Employer-sponsored plans have advantages, such as tax breaks or high contribution limits, that can benefit you as you get older. If you leave the company, you can also take your 401(k) investments with you.

You’re not getting your employer match

digitalskillet1/Adobe african american man on concerned call

Another important factor to consider is employer-matching contributions, which means your employer will match any contributions you make to your 401(k) with additional funds.

The employer match is like free money, with your company giving you extra cash for your retirement. 

So make sure you’re contributing enough money into the 401(k) to get that match, and find ways to hit the maximum amount an employer will match to boost your savings.

You haven’t increased your contributions over time

Art_Photo/Adobe senior couple calculating bills together

It may be hard to put money into your 401(k) when you start, especially if you live paycheck to paycheck.

But you’ll likely see salary increases and potentially even bonus cash as you move up in your company. 

Use those income bumps to increase the money you contribute to your 401(k). Your future self will be happy you adjusted your contributions to reflect your current success.

Resolve $10,000 or more of your debt

Credit card debt is suffocating. It constantly weighs on your mind and controls every choice you make. You can end up emotionally and even physically drained from it. And even though you make regular payments, it feels like you can never make any progress because of the interest.

National Debt Relief could help you resolve your credit card debt with an affordable plan that works for you. Just tell them your situation, then find out your debt relief options.1

How to get National Debt Relief to help you resolve your debt: Sign up for a free debt assessment here. (Do not skip this step!) By signing up for a free assessment, National Debt Relief can assist you in settling your debt, but only if you schedule the assessment.

Try it

You haven’t checked your investments lately

comzeal/Adobe serion asian couple stressed at bills

A 401(k) can be an easy way to have money taken directly from your paycheck and deposited into a retirement account without much work. However, that doesn’t mean you can set your contributions and walk away.

You need to check in on your 401(k) regularly to make sure your investments are doing well. You may also want to adjust them as you get older to investments with less risk or create a more diverse portfolio when you have more cash to invest.

You don’t have an emergency fund

katiekk2/Adobe man reviewing budget graphs on laptop

You may not see the connection between an emergency fund and your 401(k), but it can be an important piece of your retirement strategy.

An emergency fund should have at least enough money to cover three to six months of expenses and can be used for things like a medical issue, car problem, or major home repair.

Having that emergency fund to protect you means you might not have to dip into your 401(k) and borrow money from it in emergencies, which can come with penalties and extra taxes that can add up.

You haven’t rolled over old 401(k)s

Astarot/Adobe stressed african american man reviewing documents

You may have signed up for a 401(k) through an employer and then left the company, leaving your 401(k) to sit.

Creating a rollover IRA for these accounts through former employers is usually a good idea. It could give you more investment options or help you consolidate 401(k) funds from multiple employers.

You could also transfer the cash from your former employer’s 401(k) to your current employer’s 401(k) to keep your accounts together and accessible.

You see your 401(k) as a piggy bank

lusyaya/Adobe box with money and ira note

It can be frustrating to look at your 401(k) and see all that money you wish you could use for something else, like a new car or home.

Be careful about taking money out of your 401(k). Depending on what you need the money for, it is possible and could be a good option for you, but there can also be taxes and penalties for getting that cash out before you turn 59 1/2.

Talk to an accountant or financial planner to determine the taxes and penalties or if an exemption covers your withdrawal.

You’re not taking advantage of catch-up contributions

Burlingham/Adobe stressed senior man experiencing work burnout

There are ways to save money and take advantage of a retirement account, even if you got a late start contributing to your 401(k).

The IRS allows workers over the age of 50 to make catch-up contributions. This means you can still add additional funds to your 401(k) after you hit the typical contribution limit.

Make sure you’re taking advantage of the catch-up phase of contributions if you’re old enough to do so. In 2024, the regular 401(k) contribution limit is $23,000, but if you’re at least 50 years old, you may contribute up to $30,500 (an extra $7,500).

You panic sell your investments

Milan/Adobe broker monitoring stock market graphs

It can be hard to put your money into a 401(k) and then see the stock market decline, and red numbers fill your screen.

Remember that your retirement portfolio, including your 401(k), will be invested in the market for many years, and there will be many ups and downs. Panic selling on the way down could leave your cash on the sidelines when the market eventually rebounds.

Hold tight and ride out any downturns, especially if you’re early in your career and have plenty of years to compensate for any losses.

Earn cash back on everyday purchases with this rare account

Want to earn cash back on your everyday purchases without using a credit card? With the Discover®️ Cashback Debit Checking account (member FDIC), you can earn 1% cash back on up to $3,000 in debit card purchases each month!2

With no credit check to apply and no monthly fees to worry about, you can earn nearly passive income on purchases you’re making anyway — up to an extra $360 a year!

This rare checking account has other great perks too, like access to your paycheck up to 2 days early with Early Pay, no minimum deposit or monthly balance requirements, over 60K fee-free ATMs, and the ability to add cash to your account at Walmart stores nationwide.

Don’t leave money on the table — it only takes minutes to apply and it won’t impact your credit score.

Apply for a Discover Cashback Checking account today

You don’t have an overall retirement strategy

goodluz/Adobe senior couple consulting female finance advisor

Your 401(k) may be an important piece to your retirement plans, but it shouldn’t be the only piece.

Come up with an overall retirement strategy that also includes things like stock investments that aren’t in your 401(k), real estate investments, savings, and other options to help fund your retirement.

You’re not diversified

agenturfotografin/Adobe woman checking investment portfolio on tablet

Your 401(k) may be invested in only one fund, or perhaps you have stock in your company that makes up a large chunk of your 401(k) investments.

Consider selling some of those items and buying new ones within your 401(k) account to help diversify and protect your savings.

You don’t want to have an issue if your company’s stock plummets, for example, with all of your 401(k) money in that one investment.

You don’t have a long-term mindset

Drobot Dean/Adobe shocked senior woman holding money

It can be daunting to think about the money you’re saving in your 401(k) now that you won’t need for another 10, 20, or potentially even 30 years.

Don’t get caught up in the immediate drama of today’s market or set up your portfolio with too many investments focused on today’s market trends that won’t earn you much over the coming decades.

Bottom line

JackF/Adobe senior woman checking bills at breakfast

It’s essential to put what you can into a 401(k) plan now if you want to retire comfortably one day.

Create a budget that helps you find where you might be losing money and funnel any extra savings into your 401(k).

It’s also a good idea to consider other retirement investments you can add to your portfolio, including a high-yield savings account or real estate and stocks.

Choice Home Warranty Benefits

  • First month free
  • Protection for unexpected expense
  • 24/7 claims hotline
  • Network of over 15,000 technicians

Author Details

Jenny Cohen Jenny Cohen is a freelance writer who has covered a bit of everything, from finance to sports to her favorite TV shows. Her work has been featured in The Wall Street Journal, USA Today, and FoxSports.com.

Want to learn how to make an extra $200?

Get proven ways to earn extra cash from your phone, computer, & more with Extra.

You will receive emails from FinanceBuzz.com. Unsubscribe at any time. Privacy Policy

  • Vetted side hustles
  • Exclusive offers to save money daily
  • Expert tips to help manage and escape debt