This One 401(k) Mistake Could Cost You $50,000, Are You Making It?
- - This One 401(k) Mistake Could Cost You $50,000, Are You Making It?
Catherine CollinsDecember 29, 2025 at 3:05 AM
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If you have a 401(k) retirement plan, chances are that you're automatically investing with every paycheck you get. While this is convenient, it's also important to check your accounts regularly to ensure you're not making a mistake.
Some common errors people make with their 401(k)s include choosing the wrong investments, ignoring fees, and missing the employer match. Missteps like this can cost you $50,000 or more by the time you retire.
The good news is that these mistakes can be fixed by reviewing your accounts regularly, updating your contribution amounts, and taking the time to understand your fees so that you can keep as much profit as possible.
Here is more information about the 401(k) mistakes that can cause your retirement balance to be tens of thousands of dollars less than you want.
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Not getting the full employer match
The vast majority of employers offer some type of investment match, whether it's 2%, 4%, or even more. It's important to take advantage of this workplace perk, especially if your employer allows the money to be immediately vested. This is free money you can add to your accounts to help set you up for a timely retirement.
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Not keeping an emergency fund
While this is not a 401(k) mistake specifically, people who don't maintain a separate emergency fund with at least three to six months of expenses can be tempted to withdraw money from their 401(k) early if disaster strikes.
This can be detrimental because when you withdraw money before age 59 and a half, you'll be charged a 10% early withdrawal fee. Some people choose to take out a 401(k) loan if their employer allows it. While these loans can be repaid over time using your paycheck, it's still money you take out of your retirement account that isn't earning interest in the market. That's why it's so important to have your own emergency fund so that you can withstand the ebbs and flows of life without tapping into your retirement savings.
Reducing risk before it's necessary
Sometimes investing makes people nervous, and as a result, they invest conservatively in their 401(k)s when they are young. While it's important to have the proper risk adjustment as you age, younger workers can handle more aggressive portfolios because they have a longer time frame before retirement. So, work with a financial planner if you're unsure about your retirement allocation. Reducing risk before it's necessary could yield far lower returns over time.
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Not doing catch-up contributions
Catch-up contributions are like a gift from the IRS (if there ever was such a thing!). When you turn 50, you are eligible to invest an additional $8,000 every year starting in 2026. Once you turn 60, you can invest an extra $11,250 from age 60 to 63. This is an opportunity to top up your 401(k) before you retire. Taking advantage of catch-up contributions can help ensure you retire on time with enough money to live on.
Not consulting a tax specialist
There are new rules for your 401(k) in 2026, including tax changes for those 50 and over making over $150,000 a year. In 2026, catch-up contributions must be made as Roth investments rather than pre-tax investments. A tax specialist can make sure you are following all of the necessary rules, especially the ones newly for 2026. Tax mistakes can get expensive, so making sure you're compliant with your retirement contributions and withdrawals is very important.
Ignoring 401(k) fees
People don't realize how expensive 401(k) fees can be because they seem small on paper. A 1% fee doesn't feel like much. However, when you add up the fees on your account over your entire career, they can dramatically cut into your profits.
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The next steps to take
If you're worried you're making one of the 401(k) mistakes above and you want to prevent missing out on $50,000+ in returns, follow these steps.
First, get a copy of your 401(k) documents from your human resources department. These documents should include a list of the fees related to your 401(k) and the expense ratios of the funds you've chosen. These documents should also include information about your employer match, how much you've contributed, and what your employer's vesting policy is.
Once you've reviewed your information, look into lower-cost investments or ways you could lower your fees. Align your portfolio with your risk tolerance and be sure to update your contribution amount if you can afford to. If available, it could be a good idea to enroll in yearly auto-increases of your contribution.
Bottom line
Investing in your 401(k) is extremely important for retirement planning, especially if you have perks like a 401(k) match. However, not paying attention to the cost of your 401(k), the fees associated with your investments, and the tax laws that apply to you can add up to costly mistakes, like $50,000 or more in lost returns. By paying attention to your retirement funds, optimizing your accounts, and investing as much as possible, you could achieve a stress-free retirement knowing you've made wise choices during your working life.
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