When it comes to 401(k) mistakes, it pays to listen to investment guru Warren Buffett, who once said, “Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1.” Wise advice, especially when planning for your retirement — with little or no time for do-overs.
Most Americans can no longer rely on pensions for retirement, and Social Security is on shaky ground. Because of this, the humble 401(k) plan is the workhorse of most people's retirement strategy.
Studies from Vanguard and GoBankingRates show how Americans mismanage their 401(k) accounts, and one of these mistakes, such as resetting to low default contribution rates after job changes, could cost you $300,000 over your working lifetime.
We've unpacked these blunders and five other slip-ups to help you safeguard your 401(k). Fortunately, it only takes a little planning to avoid the worst 401(k) mistakes.
401(k) mistakes that can cost you thousands
Experts agree that a 401(k) is one of the best ways to save for retirement. With a 401(k), you get both tax advantages and employer matching (if available), which can add substantially to your contributions. Plus, if you automate your savings, your contribution limits can be significantly higher.
Roughly one in four people cash out their savings entirely within five years of leaving the workforce, according to a recent Vanguard survey, "How America Retires. In doing so, they forfeit the potential for greater retirement income over the long run and risk running out of money.
About 50% of those surveyed take withdrawals, but do so inconsistently. The remaining one in four people surveyed said they don't touch their savings during the first five years, even though they appear to have needs similar to those who take withdrawals.
As the Lonely Office, a podcast affiliated with jobs site Glassdoor, made clear in a recent episode, many people don't realize that when you withdraw money from your 401(k) before the age of 59-1⁄2, you are subject to a 10% early withdrawal penalty, in addition to any other income taxes you might owe. The episode concluded that if you're cashing out your 401(k) early, you must either be running out of money or be unaware of the downsides.
Worrying about tanking your retirement? Here are eight 401(k) mistakes to avoid as you plan for or jump into retirement.
1. Not knowing the difference between 401(k) plans
Employees may have two 401(k) plan options — a traditional 401(k) and a Roth 401(k) — but many don't know the differences between the two plans.
Let's start with the similarities:
- Contributions to both traditional and Roth 401(k)s, and any gains you earn, grow tax-free.
- Contribution limits for both types of plans are the same.
- Both types of 401(k)s are eligible for employer matching contributions, if offered.
How they are not the same:
Traditional 401(k)s are funded with pre-tax contributions, meaning you don’t pay taxes on the money going into your account. That's an upfront tax benefit. When you withdraw the money in retirement, it will be taxed as ordinary income. Depending on your tax bracket at the time, the tax savings from those pre-tax contributions can be quite a lot.
On the other hand, contributions to a Roth 401(k) are made with after-tax dollars. That means you can withdraw those funds in retirement tax-free, meaning you keep all of the accumulated growth.
Not sure which is best for you? Check out our article: Roth 401(k) vs. 401(k): Which Is Right for You?
2. Not adjusting your savings rate when you switch jobs
Vanguard's survey, How America Saves 2026, shows that while job switching often brings a higher pay rate, it can also put your retirement savings at risk.
Despite 64% of job switchers securing a salary increase — with a median bump of 10% — the majority (55%) actually ended up saving less. This decline often occurs because employees passively accept the new company’s default savings rate instead of proactively choosing their own. The study found that a worker starting at $60,000 who switched jobs eight times could see their nest egg shrink by up to $300,000 over their career.
The good news? With SECURE 2.0 mandating auto-enrollment for new plans starting in 2025, Vanguard predicts gains in the savings rate and number of participants. Bottom line for soon-to-be retirees: when you switch jobs, don’t let the default win. Instead, manually bump up your rate to at least match your old one to keep your retirement on track.
It's easy to forget to increase your 401(k) contributions in line with your income. However, the result is that as you become accustomed to a higher salary, you underfund the same standard of living in your retirement.
3. Forgetting your 401(k) at your old job
News flash: 401(k) accounts don’t automatically transfer when employees change jobs. That may be one reason why, as of 2025, estimates suggest there are just over 31.9 million forgotten or left-behind 401(k) accounts in the U.S., totaling around $2.1 trillion (with a T) in assets, according to Capitalize, in partnership with the Center for Retirement Research, with some sources indicating the total may be even higher.
Forgetting a 401(k), especially if you change jobs often, can mean landing a job and starting a 401(k), then moving on to another company and forgetting to transition the 401(k) or roll it over. The good news is that there are ways to find a lost 401(k). The SECURE 2.0 Act tasked the Department of Labor (DOL) with creating the Retirement Savings Lost and Found Database. It is managed by the Employee Benefits Security Administration (EBSA) and is a work in progress. Even so, it's a good place to start if you've forgotten an older 401(k).
4. Not knowing your 401(k) investments and fees
It’s not uncommon for employees, especially if automatically enrolled, to overlook how their 401(k) funds are invested. That's a mistake. Many financial advisors agree you should adjust your risk level as you age, from more growth in your early years to more stable, fixed-income investments as you age. Many people use target date funds in their 401(k)s to meet this need, automatically adjusting their risk level as they age.
Many people are also unaware of what 401(k) fees they are paying. High fees leave less in your account to compound over time. At the very least, you should review your 401(k) plan's annual fee disclosure statement.
Better yet, take the time to log into your account periodically to check your fees and investments. If you feel the stated fees are high, consider investing only enough in your 401(k) to qualify for your employer match and save the rest in an IRA instead, which also offers tax advantages.
5. Not taking advantage of employer matching
Many employers offer employee matching, which means any contributions you make to your 401(k) are matched by your employer, usually up to a set percentage of your salary. If you don’t contribute enough to your 401(k) to qualify for employer matching, you are essentially leaving free money on the table.
6. Not being vested
If your employer offers 401(k) matching, you may not be able to keep that money until you're fully vested. Vesting requires employees to fulfill a specified term of employment to gain access to benefits. Although a common vesting schedule is three to five years, employee contributions to an employer-sponsored retirement plan are always considered 100% vested.
Just be sure you understand your employer's vesting rules, which may allow you to keep the matched portion of your 401(k) after a set number of years or incrementally over time. Though you keep your own 401(k) contributions if you leave your job before the vesting period ends, you might lose the matched portion.
7. Taking an early withdrawal
Cashing out your 401(k) or taking a 401(k) loan are two of the worst mistakes you can make if you're counting on the money from your 401(k) to help support your lifestyle when you retire.
Understandably, if you’re in a tight spot and need an influx of money to pay for necessities or a medical emergency, raiding your 401(k) by taking a hardship withdrawal or 401(k) loan may end up being your only option. In fact, 401(k) loans often have lower interest rates than traditional loans, and you can repay yourself with payroll deductions. Besides, these loans don't impact your credit score.
However, cashing out your 401(k) before age 59-½ means that the money you withdraw will likely be subject to a 10% penalty on top of any income tax owed. And although many 401(k) plans allow for loans or hardship withdrawals, these withdrawals usually incur fees. Cashing out retirement money early can be a major negative and contributes to why many people have so little saved for retirement.
8. Not rolling over an old 401(k)
You can typically opt to leave your 401(k) where it is (with your old employer), roll it into an IRA, or move it into your new employer’s 401(k) plan. But sometimes, parking your money indefinitely in an old employer's plan is the wrong move.
If your account has under $7,000 invested under a previous employer's plan, they may decide to distribute the amount to you or automatically roll it into an IRA under the "forced distribution" or "involuntary cash-out" rule. Not only is this a bureaucratic headache, but you will also have to pay taxes on any distributions, plus a 10% early withdrawal penalty if you're under 59½.
If your 401(k) balance is between $1,000 and $7,000, your former employer may automatically roll the funds into an IRA. They generally cannot force a rollover directly into your new employer's plan. Finally, if you change jobs often, you may mistakenly leave 401(k) plans floating around that can be easy to forget or lose track of.
Just as the Vanguard study showed, 55% of job switchers ended up saving less in their 401(k) after changing jobs. Not rolling over an old 401(k) when you move to another company, or failing to maintain a strong savings rate, might be an expensive mistake that could cost you up to $300,000 over your career.
On the other hand, there are some advantages to keeping a 401(k) in your former employer's plan. First, if the plan offers superior investments or lower fees than your new employer's plan, you might want to keep your old plan as-is.
Second, if you plan to retire early, you might want to take advantage of the "rule of 55." This IRS rule allows individuals who leave their job during or after the year they turn 55 to withdraw funds from their 401(k) without the 10% early withdrawal penalty. By rolling over an old 401(k) into an IRA, you lose the ability to take advantage of the rule of 55.
Why do people make early withdraws from their 401(k)?
A recent FinanceBuzz survey reveals just how common early withdrawals are, and why tapping a retirement account is so common. Of the 53% of respondents with retirement accounts, 41% admitted to withdrawing funds early, with an average withdrawal amount of $15,021. Yet among these borrowers, only 43% paid back the money.
The main reasons why people tap their accounts, based on the survey, include:
Personal Debt: 24%
Recurring Bills: 21%
Major Purchase: 19%
Medical Expenses: 18%
Personal Emergency: 18%
Home Repairs: 11%
To Offset the Loss of Income: 10%
Will you be financially ready for retirement?
Many experts advise replacing 80% of pre-retirement income to enjoy a comfortable lifestyle post-retirement. That may be difficult for some people and nearly impossible for others.
According to Northwestern Mutual's 2026 Planning & Progress Study, Americans' "magic number" for a comfortable retirement has climbed to $1.46 million. That's up more than 15% from just last year.
The figure contrasts with the average retirement savings for people aged 55 to 74, which is about $192,500.
Given that 11,000 Americans will turn 65 every day through 2027, nearly half of boomers and Gen Xers don’t believe they’ll be financially ready for retirement when the time comes. Avoiding these eight 401(k) mistakes now that could imperil your retirement later on can save you many sleepless nights. That much you owe to yourself.
