Common 401(k) mistakes
Last updated August 2026
Short answer
A 401(k) is chosen once during onboarding and rarely revisited, which is why the errors are almost all errors of inattention rather than judgment.
Missing the full match
A match is a return no market offers: 50% or 100% on the money, immediately.
Contributing below the threshold forfeits part of it every pay period, and it cannot be recovered later.
Check the formula and the vesting schedule, since the second determines how much of the match you keep if you leave.
Leaving the default in place
Modern plans usually default to a target-date fund, which is a sensible holding.
Older or smaller plans sometimes default to a money market or stable value fund, where a young saver earns almost nothing for years.
Checking what you are actually holding takes one login and is the second-highest-value action available.
Cashing out on a job change
Income tax, the 10% additional tax below 59.5, and 20% withheld at source turn $10,000 into roughly $6,800.
The compounding foregone is larger: at 35, the same amount might have become several times that by 65.
Leaving it, rolling it to the new plan, or rolling it to an IRA all preserve the balance, and the decision can wait.
Try it in Walnut
Walnut connects to brokerage accounts and analyses what you hold. Whether a workplace plan can be connected depends on the recordkeeper.
Never checking the fees
Two funds tracking the same index can charge very different amounts inside a plan, and the difference is deducted rather than billed.
Plan administrative charges sit on top of fund costs, and both appear in the annual participant fee disclosure.
Over thirty years, a percentage point of annual cost is a large share of the final balance, which makes an hour reading the disclosure well spent.
The timing traps
Front-loading contributions can forfeit the match on later pay periods unless the plan offers a true-up.
Changing jobs mid-year can produce an excess deferral, because the limit is yours rather than each employer's.
An uncorrected excess is taxed twice, once in the contribution year and again on distribution, which is the worst outcome available.
Concentration and paperwork
Employer stock ties your investments to the company already paying your salary, and vesting causes it to build up without a decision.
Beneficiary designations override your will and are frequently years out of date.
Both take minutes to review and neither prompts you to do it, which is precisely why they are on this list.
A twenty-minute audit
Confirm you are contributing at least to the match threshold, and check whether the plan offers a true-up if you contribute unevenly.
Open the fee disclosure and note the expense ratio of what you hold against the cheapest index option on the menu.
Check the beneficiary designation and the vesting schedule, then leave the account alone for another year.
Sources
The 2026 deferral and catch-up limits are from IRS Notice 2025-67. Distribution rules and the exceptions to the additional tax are at Exceptions to tax on early distributions, with plan types and disclosures covered by the Department of Labor at Types of Retirement Plans. Walnut is informational and is not an investment adviser. This guide is educational and not personalized tax advice.
FAQ
What is the biggest 401(k) mistake?
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Contributing below the match threshold. A formula matching half of the first 6% pays 50% immediately on that money, and every pay period below the threshold forfeits it permanently.
Is the default investment a problem?
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Not necessarily. Plans frequently default to a target-date fund, which is a reasonable holding. The problem is defaults into money market or stable value funds, where a young saver can spend a decade earning almost nothing.
Why is cashing out on a job change so costly?
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Income tax, a 10% additional tax below 59.5, and 20% withheld at source, so $10,000 becomes roughly $6,800. The larger cost is the compounding, which for money withdrawn at 35 can be several times the amount.
How do I find out what my plan charges?
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The participant fee disclosure lists fund expense ratios and any plan administrative charge. It is provided annually and rarely read, and it is where the difference between a good plan and a poor one shows up.
What is the two-job trap?
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The deferral limit belongs to you rather than to each employer, so contributions at two employers in one year count together toward $24,500 in 2026. Neither payroll system can see the other, and correcting an excess requires acting before April.
Should I front-load contributions?
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Only if your plan offers a true-up. Hitting the annual limit in September stops contributions for the rest of the year, and without a true-up you forfeit the match on those final pay periods.
Is holding company stock a mistake?
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Concentration in employer stock ties your investments and your income to the same company. It is the single largest avoidable risk in most workplace accounts, and vesting schedules cause it to accumulate without a decision.
What about beneficiary designations?
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They override your will and they are frequently decades out of date. Reviewing them after any marriage, divorce or birth takes minutes and prevents the most common estate planning failure there is.
What is the shortest useful audit?
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Confirm you are contributing to at least the match threshold, open the fee disclosure and compare what you hold against the cheapest index option, then check the beneficiary designation and vesting schedule. Twenty minutes, once a year, catches nearly everything on this list.