The 401(k) remains one of the most accessible retirement savings options for American workers but it’s not always used effectively. Despite its popularity, many people overlook key details that can influence how much they’re able to set aside over time.
In this blog, we explore five common mistakes individuals often make with their 401(k), based on real conversations with our clients. These insights come directly from the field, where thoughtful questions can uncover issues that may otherwise go unnoticed.
While these are not listed in any particular order, each misstep has the potential to affect your long-term financial well-being.
1. Confusing “Maxing Out” With Maximizing Your Employer Match
A lot of people believe they’re “maxing out” their 401(k) just because they’re getting their full employer match, but these two things are not the same.
Let’s break it down:
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- Maxing out your employer match means you’re contributing just enough to get your employer’s full contribution which is often 3% to 6% of your salary.
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- Maxing out your 401(k) means you’re contributing the maximum amount allowed by the IRS. In 2025, that limit is $23,500 for those under 50 and $30,500 if you’re over 50, thanks to catch-up contributions.
Every dollar you contribute reduces your taxable income, which means more of your money goes toward your future instead of Uncle Sam. And don’t forget the power of compound growth. For example, assuming an 8% average annual return, you could end up with 23% more in ending wealth over 20 years, even after paying 24% in taxes on traditional IRA withdrawals.
2. Not Understanding Roth vs. Traditional 401(k) Options
Another common mistake is not understanding the difference between a Traditional 401(k) and a Roth 401(k). In some cases, individuals overlook the decision entirely, which can lead to missed opportunities for tax-efficient planning.
Here’s the difference:
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- With a Traditional 401(k), contributions are made pre‑tax, reducing your taxable income in the year you contribute. You’ll pay taxes on withdrawals, including contributions and earnings, when you take money out in retirement
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- With a Roth 401(k), contributions to a Roth 401(k) are made after taxes, which means you do not receive a tax deduction at the time of contribution. However, if you are at least 59 and a half years old and have held the account for at least five years, both your contributions and any investment earnings can be withdrawn tax free in retirement, according to IRS guidelines.
Choosing between the two depends on your current and expected future tax brackets. Remember, it’s not an all-or-nothing decision. You can split contributions between both, as long as you don’t exceed the annual limit. It can be a smart idea to periodically reevaluate this decision, especially as your income, tax rates, or career trajectory change. A mix of both types may offer the most flexibility in retirement.
3. Neglecting How Your Contributions Are Invested
Enrolling in a 401(k) is only the first step. Failing to actively choose how your contributions are invested can lead to missed growth opportunities.
Most plans place your initial contributions into a default investment option, usually a money market fund or conservative target-date fund. If you don’t change it, your money might not grow enough to keep pace with inflation and meet your retirement goals.
Instead, consider:
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- Building a diversified portfolio that aligns with your risk tolerance and time horizon.
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- Using a target-date fund that automatically adjusts risk exposure as you get closer to retirement.
It is important to consider the level of risk in your portfolio as you approach retirement. Holding an overly aggressive allocation may increase exposure to market volatility. If negative returns occur early in retirement, they may affect the longevity of your savings.
4. Leaving Your 401(k) Behind When You Switch Jobs
One of the most easily avoidable 401(k) mistakes is leaving old accounts behind after switching employers. A recent estimate found that a staggering $1.65 trillion, which is equivalent to roughly 25% of all U.S. 401(k) assets, have been left behind in former employers’ plans.
When you leave a job, you generally have three options:
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- Roll the funds into your new employer’s 401(k) plan
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- Roll them into a traditional IRA of your choosing
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- Leave the account with your former employer
Leaving your account with a former employer may come with drawbacks. Old accounts are sometimes forgotten, may offer limited investment options, or could carry higher fees. By consolidating your retirement accounts, you may gain more control, improve visibility into your overall savings, and potentially reduce administrative costs.
5. Not Contributing (Or Waiting Too Long to Start)
Arguably the most damaging mistake of all is not participating in your 401(k) at all or waiting too long to begin.
Consider this example:
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- A 30-year-old who contributes $1,300/month at a 6% annual return could reach $1 million by age 65.
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- If that same person waits until age 50 to start, they’d need to contribute $4,400/month to hit the same goal.
That’s the power of compounding interest, and why the earlier you start, the better.
What is your retirement target? According to a survey from Northwestern Mutual, the new “magic number” for retirement is $1.65 million—a sharp increase from $950,000 just five years ago. Inflation, longer life expectancy, and market uncertainty are driving the shift. However, everyone’s target will look different. Retirement planning should reflect your unique goals, timeline, and lifestyle. A financial professional can help you determine what makes sense for your unique situation.
Final Thoughts
These mistakes with your 401(k) are common but could also be avoidable with the right guidance. Whether it’s optimizing your contributions, making smart tax decisions, or simply knowing where your money is going, a few proactive steps can make a world of difference over time.
At Moran Wealth Management®, we take a comprehensive view of your financial life. We recognize that your 401(k) is just one part of a broader plan that may also include retirement income, estate planning, and charitable goals. Our team is committed to understanding your needs and providing thoughtful guidance tailored to your specific circumstances.
If you have questions about your 401(k) or how it integrates with your broader financial plan, schedule a complimentary consultation with us to start the conversation.
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The content on this page and/or video is for educational purposes only and should not be construed as investment advice. Specifically, the content is intended to provide education and tools for individuals looking to handle their retirement planning on their own. Should you need personalized investment advice, you should consult with a registered investment adviser. Any communications on this page with other individuals that are not associated with Moran Wealth Management, LLC are done voluntarily by users and are unsupervised and unaffiliated with Moran Wealth Management, LLC and Moran Wealth Management, LLC has no responsibility or liability over any discussions or advice that may be given. Moran Wealth Management, LLC is a registered investment adviser and can provide investment advice. If you are interested in Moran Wealth Management, LLC’s advisory services, you can contact us at 239-920-4440 or info@moranwm.com.
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