Retirement Retirement Planning

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.

By Jenny Cohen

Edited by Eric McWhinnie

Updated Feb. 14, 2025

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.

Steal this billionaire wealth-building technique

The ultra-rich have also been investing in art from big names like Picasso and Bansky for centuries. And it's for a good reason: Contemporary art prices have outpaced the S&P 500 by 136% over the last 27 years.

A new company called Masterworks is now allowing everyday investors to get in on this type of previously-exclusive investment. You can buy a small slice of $1-$30 million paintings from iconic artists, all without needing any art expertise.

If you have at least $10k to invest and are ready to explore diversifying beyond stocks and bonds,see what Masterworks has on offer. (Hurry, they often sell out!)

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

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.

Want to learn how to build wealth like the 1%? Sign up for Worthy to get ideas and advice delivered to your inbox.

You're not getting your employer match

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 bank account.

You haven't increased your contributions over time

It may be difficult to contribute to 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.

Get a free stock valued between $5 to $200

Secret: You don't need thousands of dollars to buy thousand-dollar stocks or create a diverse portfolio.

Robinhood offers a method of investing called “fractional shares.” On its own, one share of a single stock could cost a lot of money, making it difficult to diversify. Robinhood allows you to buy pieces of stock instead, so you have the option to build a diverse portfolio quickly.

Let’s say you want to invest $250, as an example.

With that amount, you could build a relatively diverse portfolio with an investment of $50 in a big tech stock, $50 in a retail stock, $50 in an energy stock, $50 in a manufacturing stock, and $50 in a bank.¹ This content is for informational purposes only, you should not construe any such information as legal, tax, investment, financial, or other advice. To get stock reward, new customers need to sign up, get approved, and link their bank account. Stock rewards shares cannot be sold until 3 trading days after the reward is granted and the cash value of the stock rewards may not be withdrawn for 30 days after the reward is claimed. Stock rewards not claimed within 60 days may expire. See full terms and conditions at <a href="https://robinhood.com/us/en/support/articles/open-account-pick-your-stock/">rbnhd.co/freestock</a>. Fractional shares are illiquid outside of Robinhood and are not transferable. Not all securities available through Robinhood are eligible for fractional share orders. For a complete explanation of conditions, restrictions and limitations associated with fractional shares, see the Fractional Shares section of our Customer Agreement. Robinhood Gold is offered through Robinhood Financial LLC and is a membership offering premium services available for a fee.

Even better news? Add a Robinhood Gold membership, and you’ll get access to 4.00% (as of 12/27/24) APY² Annual Percentage Yield. Rate valid as of April 12, 2024. To earn interest, a cash balance is needed. If you have a margin balance, there is no cash balance to earn interest. Interest rates for cash sweep and margin investing can change at any time. Fees may reduce interest earnings. on your uninvested cash³ Interest is earned on uninvested cash swept from your brokerage account to partner banks. Partner banks pay interest on your swept cash, minus any fees paid to Robinhood. As of Nov 15, 2023, the Annual Percentage Yield (APY) that you will receive is 1.5%, or 5% for Gold customers. The APY might change at any time at the partner banks' or Robinhood's discretion. Additionally, any fees Robinhood receives may vary and are subject to change. Neither Robinhood Financial LLC nor any of its affiliates are banks. All investments involve risk and loss of principal is possible. Robinhood Financial LLC (member SIPC), is a registered broker dealer. and the ability to buy and sell stocks 24 hours a day, 5 days a week.

Open and fund a Robinhood account and earn up to $200 in stock

You haven't checked your investments lately

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. As you get older, you may want to adjust them 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

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

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.

Grow Your $$: 11 brilliant ways to build wealth after 40

You see your 401(k) as a piggy bank

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, but there can also be taxes and penalties for taking 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

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 2025, the regular 401(k) contribution limit is $23,500, but if you're at least 50 years old, you may contribute up to $31,000 (an extra $7,500).

You panic sell your investments

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 up to a $300 bonus and grow your money with up to 3.80% APY

This powerful combination checking + savings account from SoFi® allows you to earn up to a $300 bonus with direct deposit and grow your money with up to 3.80% APY.⁴ New and existing Checking and Savings members who have not previously enrolled in Direct Deposit with SoFi are eligible to earn a cash bonus of either $50 (with at least $1,000 total Direct Deposits received during the Direct Deposit Bonus Period) OR $300 (with at least $5,000 total Direct Deposits received during the Direct Deposit Bonus Period). Cash bonus will be based on the total amount of Direct Deposit. Direct Deposit Promotion begins on 12/7/2023 and will be available through 1/31/2026. See full bonus and annual percentage yield (APY) terms at <a href="http://www.sofi.com/banking#1">sofi.com/banking#1</a>. SoFi Checking and Savings is offered through SoFi Bank, N.A., Member FDIC. SoFi members who enroll in SoFi Plus with Direct Deposit or by paying the SoFi Plus Subscription Fee every 30 days or with $5,000 or more in Qualifying Deposits during the 30-Day Evaluation Period can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. Members without either SoFi Plus or Qualifying Deposits, during the 30-Day Evaluation Period will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Only SoFi Plus members are eligible for other SoFi Plus benefits. Interest rates are variable and subject to change at any time. These rates are current as of Jan. 24, 2025. There is no minimum balance requirement. Additional information can be found at <a href="http://www.sofi.com/legal/banking-rate-sheet">http://www.sofi.com/legal/banking-rate-sheet</a>. See the SoFi Plus Terms and Conditions at <a href="https://www.sofi.com/terms-of-use/#plus">https://www.sofi.com/terms-of-use/#plus</a>.

This is one of the top accounts we’ve seen, and offers like this can be rare. You work hard, and now it’s time to make your money work for you — with SoFi, you can grow your money with hardly any effort!

SoFi has no account or overdraft fees⁵ Overdraft Coverage is limited to $50 on debit card purchases only and is an account benefit available to customers with direct deposits of $1,000 or more during the current 30-day Evaluation Period as determined by SoFi Bank, N.A.  The 30-Day Evaluation Period refers to the "Start Date" and "End Date" set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the "30-Day Evaluation Period"). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY.  Members with a prior history of non-repayment of negative balances are ineligible for Overdraft Coverage. and additional FDIC insurance up to $2 million on deposits is available through a seamless network of participating banks.⁶ We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Checking & Savings Fee Sheet for details at <a href="http://sofi.com/legal/banking-fees/">sofi.com/legal/banking-fees/</a> ⁷ SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by the SoFi Insured Deposit Program. Deposits may be insured up to $2M through participation in the program. See full terms at <a href="http://sofi.com/banking/fdic/terms">SoFi.com/banking/fdic/terms</a> See list of participating banks at <a href="http://sofi.com/banking/fdic/receivingbanks">SoFi.com/banking/fdic/receivingbanks</a> Plus, you can receive your paycheck up to 2 days early.⁸ Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.

How to earn up to $300: Sign up and make a direct deposit within the first 25 calendar days of the promotional period, then collect a $300 cash bonus with a direct deposit of $5,000 or more.

SoFi is a Member, FDIC. ⁷ SoFi Bank is a member FDIC and does not provide more than $250,000 of FDIC insurance per legal category of account ownership, as described in the FDIC’s regulations. Any additional FDIC insurance is provided by the SoFi Insured Deposit Program. Deposits may be insured up to $2M through participation in the program. See full terms at <a href="http://sofi.com/banking/fdic/terms">SoFi.com/banking/fdic/terms</a> See list of participating banks at <a href="http://sofi.com/banking/fdic/receivingbanks">SoFi.com/banking/fdic/receivingbanks</a>

Open your SoFi account and set up direct deposit

You don't have an overall retirement strategy

Your 401(k) may be an important part of your retirement plans, but it shouldn't be the only part.

Come up with an overall retirement strategy that also includes things like stock investments outside your 401(k), real estate investments, savings, and other options to help fund your retirement.

You're not diversified

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

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.

Supercharge your investments: See what could happen if you add fine art to your investment portfolio

Bottom line

If you want to enjoy a stress-free retirement one day, it's essential to put what you can into a 401(k) plan now.

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 adding other retirement investments to your portfolio, such as a high-yield savings account or real estate and stocks.

More from FinanceBuzz:

4.5

Discover® Cashback Checking

Earn 1% cash back on up to $3,000 in debit card purchases each month.⁹ See website for details. No minimum deposit or balance. FDIC Insured.

Learn More

Take Advantage of Massive Discounts

Become a member and enjoy discounts on things like travel, meal deliveries, eyeglasses, and more.

Get up to 25% off your first year

Protect Your Identity Online Before You Get Compromised

Helps to identify and prevent fraud in real-time with 24/7 U.S.-based support.

Get protected now