Retirement planning is a big part of your financial preparation and strategy. Your 401(k) is one of the best retirement investing accounts you have and so easy to set up through your employer. Add on tax free or tax deferred growth and matching employer contributions and you’ve got a retirement planning powerhouse.

However, among the biggest retirement planning mistakes includes ignoring your 401(k) and forgetting to contribute to your workplace retirement account. Following are the 9 biggest retirement planning mistakes to avoid. Most of these 401(k) mistakes can be avoided with smart retirement planning and help from professional retirement consultants.

401(k) Mistakes That Can Cost You

Most experts agree that a 401(k) is one of the smartest ways you can save for retirement.

But here’s the catch, about one-third of middle-class Americans are dipping into their retirement funds before actually retiring, according to a 2025 Transamerica Research study, “Retirement in the USA: The Outlook of the Workforce”*. If you do that, you could be putting your future financial security at serious risk. Withdrawing from your 401(k) before you turn 59½ typically means paying a 10% penalty in addition to any income taxes owed. That one decision could cost 30%+ of the amount withdrawn.

These are some common retirement planning mistakes to avoid:

1. Being Unaware of Types of 401(k) Accounts

When it comes to 401(k) accounts, most people can choose between two main types: traditional 401(k) and Roth 401(k). The difference between them can have a big impact on your retirement strategy.

With a traditional 401(k), your contributions are made before taxes, so you lower your current taxable income. However, you’ll pay taxes later when you withdraw money from your 401(k) in retirement. This can offer major tax advantages today, depending on your current tax bracket. A traditional 401(k) might be a good choice if you believe that you’ll be in a lower tax bracket when you retire and start your withdrawals.

On the other hand, a Roth 401(k) is funded with after-tax income, which means that you pay taxes on your income before funding the Roth 401(k). When you retire, your 401(k) withdrawals, including any investment growth, are completely tax-free. This account might be good for you if you anticipate that tax rates will go up in the future or that you’ll be in a higher tax bracket in retirement.

2. Failing to Make Saving a Regular Habit

It’s easy to think you’ll start saving later when you feel more financially secure. But, if you don’t save enough, skip contributions to a 401(k) or fail to gradually increase your 401(k) contributions as your income grows, it could seriously impact your retirement savings in the long run.

The good news is that it’s simple to get started. You can set up your 401(k) to automatically deduct contributions from your paycheck, so that you’re saving and investing automatically.

Many plans also let you schedule automatic annual increases to your contribution rate. This way, you’re contributing a greater amount each year. These auto increases usually stop once you hit 10%, though some plans allow you to go as high as 15%.

3. Being Unaware of How Your 401(k) Money is Invested

A lot of people just pick a few funds when they first set up their 401(k) and never look at them again. But do you know what you’re actually invested in? You’re making a big mistake if you don’t know where your 401(k) money is going, what fees you’re paying, or how your investments are performing.

At BarbaraFriedbergPersonalFinance, we use the FREE Empower planner to check investment fees and calculate how to reach our retirement goals.

Some people simply stick with the default investment, usually a target-date fund tied to their expected retirement age, and never review it. And that might be the best approach for you. But be certain that you’re not overpaying in fees.

Your plan is required to send you a fee disclosure each year, so don’t ignore it. If you find your plan has steep fees, it might make sense to only contribute enough to get your employer’s match, then put any extra savings into an IRA where can choose to invest in lower cost options.

4. Missing Out on the Full Employer Contribution to Your 401(k)

Many companies offer to match a portion of your 401(k) contributions, which is a great way to boost your savings. For example, your employer might match 50% of what you contribute, up to 6% of your salary, essentially giving you free money.

If you’re not contributing enough to get the full match, you’re missing out on free money. Financial experts consistently recommend contributing at least enough to capture the full employer match since it can significantly speed up the growth of your retirement savings. Remember, these matching funds often come with a vesting schedule that can take a few years.

5. Forgetting About old 401(k) Accounts – Should I Rollover my 401(k)?

Every time you leave a job, it’s easy to forget about your 401(k). But forgetting about old accounts can lead to 401(k) rollover mistakes and potential losses.

You have a few options for handling a 401(k) from a previous job, you can leave it where it is, transfer it into your new employer’s 401(k) or rollover your 401(k) into an IRA.

For example, leaving your account with a former employer, especially a smaller one, could eventually require action on your part or even result in a forced cash-out, which might trigger taxes and penalties. Plus, having multiple accounts with different past employers can make it harder to manage your investments and stay organized.

The benefits of a 401(k) rollover into an IRA are that you can typically lower your investment management fees. You can also choose lower fee funds to invest in along with a greater variety of investments. Rolling over your 401(k) into an IRA gives you more control over your investments and fees.

6. Switching Jobs Before You’re Fully Vested

If you leave a job too soon, you might lose the employer contributions made to your 401(k). “Vesting” means you have to stay at the company for a certain amount of time to fully own that money. Understand what you’re giving up and how long you need to stay at a company to keep the full employer 401(k) match.

While generally, people expect a 10% or more pay increase when changing jobs, very few take the wise step of maintaining or boosting their retirement savings rate after a pay increase. It’s easy to overlook adjusting your savings and investing as your income grows, but failing to do so means you’re likely under-saving for retirement.

7. Cashing Out Early

One of the worst things you can do to your retirement savings is treat your 401(k) like a piggy bank, whether you’re cashing it out, taking a loan, or making a hardship withdrawal. While it might be tempting, early withdrawals from your 401(k) can seriously hurt your retirement planning.

If you cash out your 401(k) before age 59½, you’ll usually face a 10% penalty from the IRS, plus income taxes on the amount you take out. While many plans do allow loans or hardship withdrawals, they often come with fees. And even if there’s no extra charge, you’ll still lose the potential growth your money could have earned if it stayed invested.

8. Obsessing Over Your Balance

Checking your 401(k) balance every day or every week is not helpful, especially when the market dips. Investing in stock and bond funds means learning to accept the normal ups and downs of the financial markets. The reason that you earn higher rates of return from investing than from collecting interest on your savings account, is because you’ll need to tolerate the investment price volatility. Retirement investing is a long game. Trust the process and try not to panic over short-term ups and downs. And, do not sell after a market dips, or you might not get back into the market in time to profit from the investment price rebound.

Those who stick in the markets over decades and avoid panic selling, when stock prices drop, typically have higher long-term returns than those who try to time the market and figure out when to buy and when to sell.

9. Putting too Much Money into Company Stock

Loyalty to your company is great, but putting a big chunk of your 401(k) into company stock can be risky. If something happens to the company, you could lose your job and a big portion of your retirement savings at the same time. It’s safer to diversify your investments.

According to the Financial Industry Regulatory Authority (FINRA), it’s best to limit your investment in your own company’s stock to no more than 10% to 20% of your 401(k).

Biggest Retirement Planning Mistakes Wrap up

Your 401(k) can be a powerful tool for building a secure financial future, but only if you avoid these common 401k mistakes and get involved in your retirement planning. Take some time to understand your account, stay consistent with your savings, and keep an eye on the big picture. You might also consider professional guidance, with a self-directed retirement plan and help to form your strategy. With a few smart moves today, you’ll thank yourself once you retire.

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