10 Things Never to Do with Your 401(k)

A 401(k) can steadily grow into a powerful retirement tool when handled with care. And yet, few simple missteps can shrink those savings far more than most people expect. Workers lose thousands of dollars every year by skipping contributions, cashing out early, or overlooking the fine print in their plan. Here are 10 situations that can throw a 401(k) off track.

Not Making Saving a Habit

A 401(k) earns its value through regular contributions that compound over time, and the IRS allows up to $23,500 in 2025, with an additional $7,500 for workers 50 or older. Many plans offer automatic 1% annual increases that help boost contributions without adding stress to a budget. Stopping and starting contributions reduces growth because the money never has a chance to compound year after year.

Ignoring What You’re Invested In

Many workers never review their investment mix, despite the fact that fees and returns vary widely. Vanguard reported that many people who rolled accounts into IRAs left their money sitting in cash for seven years, which typically earns about 2%. Long-term market averages often land closer to 8%, and that gap can cost a 40-year-old more than a million dollars on a sizable rollover.

Missing the Employer Match

Many workplaces add to your retirement savings when you contribute, so not taking full advantage of that match means leaving money behind. A typical plan might match 50% of the first 6% you put in, which works out to an extra 3% of your salary each year. CNBC reports that more than 20% of employees with access to a match don’t contribute enough to receive the full amount, and that choice quietly cuts into long-term growth.

Leaving Before Becoming Vested

A company’s contributions only belong to the employee once they are vested according to the employer’s schedule. Some workers leave right before hitting that milestone and lose years of matching dollars along with the growth those funds would have generated. Checking a vesting schedule before switching jobs can protect a significant chunk of future retirement money.

Mixing Up Traditional and Roth 401(k)s

Traditional 401(k)s use pre-tax dollars, and withdrawals in retirement are taxed as income. Roth 401(k)s use after-tax dollars, and qualified withdrawals are tax-free. Choosing the wrong type for a situation affects how much of the balance stays in the retiree’s pocket, and many workers contribute without understanding how taxes hit later in life.

Taking an Early Withdrawal

Pulling money out of a 401(k) before age 59½ triggers income taxes and usually a 10% penalty. Vanguard’s research shows that 41% of workers cash out some of their savings when switching jobs, and 85% of those people drain the entire account. A 30-year-old who cashes out around $61,500 can lose roughly $1 million in future growth because the money stops compounding.

Checking the Balance Every Day

Looking at a 401(k) too often creates anxiety when market swings hit, and that stress can push someone to reduce contributions or change investments unnecessarily. Long-term strategies work best when given the time to grow, and daily monitoring often encourages short-term thinking that interrupts that rhythm.

Putting Too Much Into Company Stock

FINRA recommends keeping company stock to 10% to 20% of a 401(k) because a job and retirement savings tied to the same employer create concentrated risk. Some businesses even restrict when these shares can be sold, which limits flexibility if the company runs into trouble.

Losing Track of Old 401(k)s

Old accounts can pile up over a career, and ignoring them leads to scattered funds, inconsistent investment strategies, and sometimes forced cash-outs from smaller plans. Workers can leave the account in the old plan or roll it into a new employer’s plan. They can also move it into an IRA. Rolling over consolidates investments and reduces the chance of forgetting an important account.

Using the 401(k) as a Loan Source

About 20% of workers have an active 401(k) loan, and 37% take one within a five-year span. Loan balances stop compounding while they are out of the market, and losing a job during repayment can turn the outstanding amount into a taxable distribution with penalties. A $50,000 loan repaid over five years often results in tens of thousands of dollars in lost growth compared to leaving the money invested.