Retirement Retirement Planning

This One 401(k) Mistake Could Cost You $60,000 - Are You Making It?

These easy-to-miss mistakes can quietly cut into your investment returns.

By Catherine Collins

Edited by Laura Hohenstein

Updated Dec. 16, 2025

Opening a 401(k) and choosing your investments can be confusing and intimidating. You might worry that you're not contributing enough or feel unsure about the funds you selected. It's normal to wonder if you're making the right money moves, and fortunately, the more you learn about how a 401(k) plan works, the more confident you'll be.

The most important part of managing your retirement accounts is to be aware of some major pitfalls that could cost you tens of thousands of dollars over the course of your career. Here are six of the most common mistakes people make when it comes to their 401(k)s, so you can stay aware and avoid them.

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Not investing early enough

Although it's never too late to start investing, the earlier you start, the better. Ideally, employees should begin contributing to retirement in their twenties to maximize the power of compound interest.

Vanguard's retirement calculator shows that investing $5,000 annually from age 25 to 30 could increase a retirement account by over $100,000 by age 65. The calculator showed that a 25-year-old who invests $5,000 annually would have $480,300 at 65, assuming a 7% rate of return. However, if that same person waited until 30 to start investing $5,000 a year, instead of 25, they would have only $373,800 at 65.

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Not taking the full employer match

Vanguard's 2025 How America Saves Report found that 96% of employers contribute to their employees' retirement plans in some way. This includes matching contributions or discretionary contributions.

However, many employees do not take advantage of the full retirement match that they're offered. For example, some employers offer a 100% contribution match up to a certain percentage, such as 5%. Employees who contribute less than that could be giving up thousands of dollars in free retirement contributions and growth over their careers.

Ignoring catch-up contributions

Ideally, increase your contributions every year, especially when you get raises. When you reach age 50, you have the opportunity to take advantage of catch-up contributions.

In 2026, those over 50 can contribute an extra $8,000 to a 401(k) every year, and those between 60-63 can contribute an additional $11,250 if their plan allows. Making these catch-up contributions can help you grow your retirement nest egg significantly in the last few years of your working life.

Taking out 401(k) loans

In the Federal Reserve's 2024 Economic Well-Being of U.S. Households, the data show that 47% of adults would have trouble covering a $400 emergency. So, it's no surprise that withdrawing from a 401(k) early can be tempting when people fall on hard times.

However, even if you pay the 401(k) loan back, you could be missing out on significant investment returns. For example, let's say an employee takes out a $15,000 401(k) loan with a five-year repayment period. Had they left $15,000 in and earned 7% interest annually, that money could have grown to over $20,000. Even if you make monthly payments on time each month, you're paying yourself back gradually, not all at once, so you won't see as much growth in your account.

Paying too much in fees

If you have a 401(k), you are likely paying plan administration fees and investment fees. The Department of Justice explained in a recent report that these fees can cut into your overall retirement earnings.

Often, it can be confusing to understand just how much you're paying in fees within your 401(k) plan. However, the DOJ advises employees to look at their 401(k) plan's summary plan description (SPD), which outlines the investments you can purchase with your plan, the fees associated with them, and the expenses you incur while using the plan. Switching to low-cost investments can save you thousands of dollars over time.

Having too much employer stock

Some employers offer company stock as part of their compensation package. However, having too much of your total portfolio invested in a single company's stock is risky, even if you believe in its success.

Companies can lose revenue and go bankrupt, and for that reason, it's best to diversify your investments. According to advice from the brokerage firm Charles Schwab, having more than 20% of your portfolio in company stock is risky and considered overconcentration.

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What to do next

To make sure you don't repeat the mistakes listed above, here are a couple of action steps. First, increase your retirement contributions with every raise, and maximize your employer match. It's free money after all! Next, carefully look at how much you're paying in 401(k) and investment fees, and switch to lower-cost investments if necessary. Finally, when you turn 50 (or if you're already there), take advantage of catch-up contributions.

Bottom line

It's possible to become a 401(k) millionaire and retire comfortably, even on a modest income. However, the key is to make thoughtful investment choices, regularly monitor your account fees, and stay consistent with contributions. Avoiding mistakes like the ones mentioned above can add tens of thousands of dollars to your retirement savings, so it's worthwhile to take an active role in managing your 401(k), starting now.

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