7 401(k) Mistakes That Are Costing You Hundreds of Thousands

Most Americans are leaving massive amounts of money on the table with their 401(k). Here are the seven most expensive mistakes — and exactly how to fix them.

1. Not Getting the Full Employer Match

If your employer matches 100% of contributions up to 4% of salary, not contributing at least 4% means you’re turning down free money. On a $70,000 salary, that’s $2,800/year left on the table. That $2,800, invested for 30 years at 7%, becomes $283,000. One decision. Two hundred and eighty-three thousand dollars.

Fix: Always contribute at least enough to capture the full employer match. This is the single highest-return financial move available to most Americans.

2. Leaving It in the Default Fund

Most 401(k) plans auto-enroll you into a money market fund or overly conservative target-date fund. Many target-date funds also carry higher expense ratios than their underlying index funds.

Fix: Log into your 401(k) portal and check your allocation. If you’re under 50, you likely want 80–100% in equity index funds. Find the lowest-cost S&P 500 or total market index fund in your plan.

3. Ignoring Expense Ratios

A fund with a 1% expense ratio vs 0.03% costs you nearly 1% of your entire balance every single year.

$10,000 invested for 30 years at 7% gross return:
→ With 0.03% fees:  $74,500
→ With 1.00% fees:  $57,400
→ Fees cost you:    $17,100

On a $200,000 balance: fees cost $342,000 over 30 years.

Fix: Always choose the lowest-cost index funds available in your plan. Look for expense ratios below 0.10%.

4. Cashing Out When Changing Jobs

When you leave a job, cashing out your 401(k) triggers ordinary income taxes plus a 10% early withdrawal penalty. On a $30,000 balance in the 22% bracket, you’d net approximately $20,400 — a $9,600 haircut.

Fix: Roll it directly into your new employer’s 401(k) or a traditional IRA. Takes 20 minutes. Costs nothing. You keep 100%.

5. Not Increasing Contributions with Raises

Most people set their contribution rate once and never touch it. Meanwhile, lifestyle inflation consumes every raise.

Fix: Every time you get a raise, direct 50% of the increase into your 401(k). You never miss money you never had, and it’s the fastest path from 6% to 15% contribution rate.

6. Contributing to Traditional When Roth Is Better

If you’re in the 12% or 22% federal bracket now and expect to be in a higher bracket in retirement, Roth is almost always better.

Roth 401(k) contributions are after-tax, but all growth and withdrawals are completely tax-free. In 2026, the Roth 401(k) limit is the same as traditional: $23,500.

Rule of thumb: Under $50,000/year single or $100,000/year married → strongly favor Roth. Over $150,000/year → traditional often makes more sense.

7. Not Knowing Your Vesting Schedule

Employer match contributions often vest over 2–5 years. If you leave before being fully vested, you forfeit a portion of the match.

Example cliff vesting schedule:
Year 1: 0% vested
Year 2: 0% vested
Year 3: 100% vested

Example graded vesting:
Year 1: 20% | Year 2: 40% | Year 3: 60% | Year 4: 80% | Year 5: 100%

Fix: Know your vesting schedule before accepting a job offer and before making any job change. A $15,000 unvested employer match is real money to factor into career decisions.