10 Critical 401(k) Mistakes People Make in Their 60s That Could Cost Them

For a stress-free retirement, it's crucial to handle your accounts — especially your 401(k) — correctly. As the largest part of most retirement savings, mistakes can seriously hurt your long-term financial health. If you're in your 50s or early 60s, avoiding these pitfalls is essential.

Here are 10 common costly mistakes people make in their 60s and 50s with their 401(k) accounts.

While it can be tempting to do so, if you cash out your 401(k) before age 59 1/2, you'll face a hefty penalty from the IRS. In addition to having to pay income tax on the money you take out, the federal government will tack on a 10% early withdrawal penalty.

You'll also lose out on the compounding interest that happens at the tail end of your investment career, which could wreck any possibility for big gains in these final crucial years.

Once you reach a certain age (currently 73, but set to increase to 75 for younger cohorts), you must start drawing down a minimum amount from your account annually. This has to happen within the calendar year, or else you face a stiff penalty.

The IRS will levy an excise tax of 25% of the shortfall for the year. This can significantly reduce your account balance, and it could occur over several years if you're not vigilant.

Once you're over the age of 50, the IRS allows you to make extra "catch-up" contributions that are above the standard limits. In 2025, the catch-up contribution can be up to $7,500 for a regular 401(k) account, but there is also a "super" catch-up of up to $11,250 for those aged 60 to 63.

These extra contributions during your final working years can make a huge impact on the size of your 401(k). The more money you can put into your account, the more money you can make from the compounding interest taking place.

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Many employers will match contributions to a 401(k) up to a certain point, but you have to have the correct percentage of your own contribution set for each paycheck. If your company matches up to 3% per paycheck and you have only set your contribution to 2%, you're essentially missing out on free money.

Even at a later stage in your work life, missing out on these contributions will give you less cash in your accounts, which is never a good thing.

If you withdraw too much money at once or poorly time the withdrawals with market volatility, you can incur significant costs. If you withdraw too much, you'll bump up your tax liability and reduce your overall principal in the account.

Additionally, if you're not taking money out while in your 60s, you'll be forced to take out massive RMDs later on. Instead, aim to withdraw the same amount each year if possible.

Claiming Social Security without a long-term withdrawal plan for your retirement accounts can be costly. Benefits are taxed based on other income, so taking them too early may permanently reduce your income and force you to draw more from your other accounts.

Plan your yearly withdrawals carefully and delay Social Security as long as you can.

Large withdrawals from your retirement accounts can impact your Medicare premiums, which are based on your modified adjusted gross income (MAGI). The more you take out from your 401(k), the greater the chances are that you will have to pay a Medicare surcharge known as an Income-Related Monthly Adjustment Amount (IRMAA).

Be mindful of how much you're taking out every month and how close you're coming to the IRMAA limit.

It's natural for those approaching retirement to reduce their exposure to volatile parts of the market, but moving too much money around in a downturn can lock in losses. By moving your portfolio into cash or stable income like bonds during a period of financial instability, you'll miss out on more long-term growth potential.

Any market downturn will eventually correct itself, so don't make any impulsive money moves if you're withdrawing during a recession.

Many 401(k) plans still offer high-expense mutual funds, annuities, or actively managed products with annual fees over 1%. At age 60 or older, when account balances are often largest, fees eat up more dollars every year, and high-cost funds that don't produce a good return can chip away at your portfolio.

Review what types of fees you're paying and what kinds of funds you're invested in, and make changes if they're too expensive.

With Americans changing jobs frequently, it's easy to forget 401(k) accounts — and that can be costly. As of May 2023, Kiplinger reports over 29.2 million forgotten accounts in the U.S., totaling $1.65 trillion in unmanaged assets.

Neglecting a retirement fund can lead to lost balances, hidden fees, missed RMDs, or overlooked investment opportunities.

The closer you get to your target retirement age, the more critical avoiding 401(k) mistakes becomes. You want to ensure that your accounts are fully diversified to weather any market downturns. If your retirement plan doesn't factor in withdrawal timing, Social Security, and other vital factors, you're setting yourself up for a stressful situation.

Do your part later in life and give yourself a chance at a relaxing retirement; diligence now will pay off later.