12 Costly 401(k) Blunders That Can Keep You from Retiring

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.

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1. 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 .

Do you owe the IRS over $10K? Ask this company to help you eliminate your late tax debt.

2. 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 .

3. 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.

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4. 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.

5. 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.

6. 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.

7. 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.

8. 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 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).

9. 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.

10. 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.

11. 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.

12. 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.

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.

Money tips that can work for everyone

No matter what your bank account balance is, there's always an opportunity to optimize and improve your finances. Here's a quick checklist of things you can look at today.

Focus on paying off your debt. Debt can hold you back from making progress with your overall financial well-being. Aside from cutting expenses, there are tools that can help you pay off debt faster like balance transfer credit cards and debt counseling.

Earning extra income can give you breathing room. If finances are tight, earning some extra money to supplement your income can make a huge difference. A new job is one option to consider, but if you're not ready to make a big change or already retired, a part-time side job could be a better choice.

Cut your expenses. It sounds painful and so not fun, but it doesn't have to be. Take a look at your biggest expenses because that's where you'll probably find the biggest savings. For example, auto insurance rates have been soaring so shopping around for a new insurance company can be the fastest way to cut your bill. Also, look for ways to cut your grocery bill (despite rising inflation).