When it comes to building long-term retirement savings, few opportunities are as powerful and tax-advantaged as participating in your employer-sponsored 401(k) plan. A 401(k) can help you grow your retirement nest egg through tax benefits, employer matching contributions, and the potential for long-term investment growth. To make the most of these valuable benefits, be sure to avoid the following common 401(k) mistakes:

  • Delaying Participation. One of the most common retirement planning mistakes is waiting too long to begin contributing to a 401(k) plan. It can be tempting to postpone saving until you have more disposable income, but time is one of the most valuable assets in building retirement wealth. By starting early, your contributions have more opportunity to benefit from the power of compound growth. Even small, consistent contributions can accumulate into a significant retirement nest egg over the course of several decades.
  • Not contributing as much as you can.The maximum contribution amount allowed in 2026 is $24,500 (up from $23,500 in 2025). There are additional “catch-up” contribution amounts for those over age 50. In 2026, the general catch-up amount is $8,000 (up from $7,500 in 2025). However, for taxpayers age 60, 61,62 or 63 by the end of the tax year, the catch-up contribution is $11,250 in 2026 (and 2025). If you’re making traditional (non-Roth) contributions, your contributions are deducted from gross pay, so you don’t pay current income taxes on them. You must still pay Social Security and Medicare taxes. In addition, earnings and capital gains on your investments grow tax-deferred until withdrawn. When you withdraw money, you’ll have to pay income taxes on the contributions and earnings (and a 10% federal penalty may be due if withdrawals are made before age 59 1/2). But the tax-deferred growth means you could have a larger investment balance at that time than if you had been paying taxes currently during the years. Aim to contribute as much as possible to the plan, although your employer will probably set a limit in terms of a percentage of your pay to comply with government regulation.
  • Not maximizing employer matching contributions.  If you can’t afford to contribute the maximum permitted by the plan, at least contribute enough to take full advantage of any employer matching contributions.   If you’re contributing the maximum for the year, make sure your contributions are taken out of your pay uniformly throughout the year.   Many employers match contributions as they’re made, so you could forgo any futher matching if you reach the maximum before year-end.
  • Not reviewing your investment choices carefully. Because you are responsible for investment decisions in your 401(k) plan, understand each available alternative before making a choice. Keep in mind the long-term nature of your retirement goal and select investments that are appropriate for that time period.
  • Not monitoring your allocations. Take time to understand the format of your periodic statements and the information included. At least annually, analyze your current investment allocations to decide if changes are needed to rebalance your portfolio.
  • Borrowing from your plan. While it can be comforting to know you can gain access to your 401(k) funds, borrow only as a last resort. You are borrowing from yourself and will pay interest to yourself, but there are also hidden costs to this borrowing. When you borrow, some of your investments are sold. While your loan is outstanding, you miss out on any capital gains or other income those investments may have earned.
  • Raiding your plan before retirement.When changing employers, many participants are tempted to withdraw money from their 401(k) plans. Resist this temptation: Remember that your 401(k) plan is for your retirement, and leave the money invested until you retire. If you withdraw the money, not only do you deplete your retirement fund, you also must pay ordinary income taxes on the distribution and a 10% federal penalty if you are under age 59 1/2 (55 if you’re retiring).
  • Failing to diversify your retirement savings. While a 401(k) plan is one of the most effective retirement savings vehicles available, it may not be enough to meet all of your income needs throughout retirement—especially as life expectancies continue to increase. Take time to evaluate your long-term retirement goals and projected expenses to determine whether additional savings vehicles, such as IRAs, brokerage accounts, or other investments, should be part of your overall retirement strategy.

ABOUT GROSSMAN ST. AMOUR CPAs PLLC

As a leading certified public accounting firm located in central New York for 68 years, Grossman St. Amour CPAs PLLC is focused on the quality service standards that are highly regarded in the accounting profession. The accounting firm provides businesses and individuals with accounting, audit, taxation, business planning and valuation, financial planning, fraud examination and deterrence, and accounting firm peer review services.  For more information about how Grossman St. Amour CPAs PLLC can be of service to you, contact [email protected], or call 315.424.1120.