Federal rules for readers across the U.S.
5 401(k) Mistakes That Shrink Retirement
By Christian Brinkley. Reviewed October 8, 2026.
Educational information only, not personalized tax, legal, or investment advice. Christian is a licensed insurance agent (NC Life & Health), not a CPA or registered investment adviser. Discuss your own situation with a qualified professional.
Mistake 1: Not capturing the full employer match
Many employers match a percentage of your contributions, and it is free money with no catch. Contributing less than the match threshold leaves part of your compensation unclaimed. At minimum, contribute enough to get every matching dollar before funding anything else.
Mistake 2: Cashing out when changing jobs
Cashing out a 401(k) when you leave a job triggers income tax on the full amount. If you are under 59 and a half, you also owe a 10% early withdrawal penalty. A direct rollover to an IRA or your new employer's plan moves the money with no tax and no penalty.
Mistake 3: Taking loans without a repayment plan
A 401(k) loan is not taxed if you repay it, but the payments come from your paycheck with after-tax dollars. If you leave the job, most plans demand full repayment quickly or the balance becomes a taxable distribution. Borrow only for true needs, and know the payoff date before you sign.
Mistake 4: Ignoring fees
Fund expense ratios and plan fees quietly eat returns year after year. Two funds that look alike can differ by a full percentage point in cost, which adds up to tens of thousands over a career. Check your plan's fee disclosure once a year and favor low-cost index options.
Mistake 5: Keeping a stale portfolio
A portfolio picked at age 25 should not look the same at 45. Target-date funds adjust automatically, but custom mixes need a yearly rebalance back to your target allocation. For 2026 the elective deferral limit is $24,500, so make sure rising contributions follow your allocation too.
| Topic | How they compare |
|---|---|
| Not capturing the full match | Contribute at least to the match threshold |
| Cashing out when changing jobs | Do a direct rollover to an IRA or new plan |
| Loans without a repayment plan | Borrow only with a payoff date set |
| Ignoring fees | Review fee disclosures yearly, favor index funds |
| Keeping a stale portfolio | Rebalance to your target allocation yearly |
Your records checklist
- Confirm your contribution rate captures the full employer match.
- Roll old 401(k)s over directly, never as a check to you.
- Read your plan's fee disclosure and note your total costs.
- Rebalance your allocation once a year, or use a target-date fund.
Common questions
- Is it ever okay to cash out a 401(k) when changing jobs?
- Almost never. You pay income tax plus a 10% penalty under age 59 and a half, and you lose decades of growth. A direct rollover to an IRA keeps the money growing with no tax event.
- How much can I contribute to a 401(k) in 2026?
- The elective deferral limit is $24,500 for 2026. That cap is just your own contributions, and employer matches sit on top of it. Maxing it out is a goal, but capturing the match comes first.
Sources and current instructions
Check the tax year and any later updates before acting. These are the primary sources used for this guide.