A 401k plan can be an excellent company employee benefit, helping you save toward retirement using pre-tax, Roth and (sometimes) after-tax contributions. Could you be making mistakes that are keeping you from optimizing this valuable benefit? Below we share five common 401k plan mistakes as well as tips for avoiding them.
Mistake #1 – Not Contributing Enough to Receive the Employer Match
Many 401k plans offer an employer matching contribution up to a certain percentage of your salary. If you’re not contributing enough to at least receive the full employer matching contribution, you’re missing out.
Tip: Make sure you’re contributing at least enough to your 401k plan to receive the full employer matching contribution. As an example, if your plan offers a 100% match on your first 3% of contributions and a 50% match on your next 2% of contributions, make sure you’ve elected at least a 5% salary deferral. You can often set your percentage savings election by logging in to your participant account through the plan provider’s website.
Mistake #2 – Not Contributing Enough to Maximize Your Contributions
In 2025, employees can contribute up to $23,500 (or up to $31,000 if over age 50) to a 401k plan on a combined pre-tax or Roth basis. Once you’ve saved enough to receive your full employer matching contribution, you can make additional pre-tax and/or Roth contributions to the plan up to these limits. Pre-tax contributions aren’t subject to income tax, grow tax-deferred and are taxed once withdrawn. Roth contributions are subject to income tax but can potentially grow tax-free.
Tip: If you have the capacity to save more for retirement beyond the percentage required for the full employer matching contribution, consider maximizing your pre-tax and/or Roth contributions. You can often set your percentage savings election by logging in to your participant account through the plan provider’s website. Be sure to review your elections periodically, as 401k plan contribution limits may change on an annual basis.
Mistake #3 – Missing Out on After-Tax Contributions
As noted above, employees can contribute up to $23,500 (or up to $31,000 if over age 50) to a 401k plan on a combined pre-tax or Roth basis. Beyond these limits, many plans may offer additional after-tax contributions. The maximum allowable contribution to a 401k plan in 2024 is $70,000 (or up to $77,500 if over age 50), which includes the combined total of your pre-tax and Roth contributions, your after-tax contributions and your company’s employer contributions, including matching contributions. After-tax contributions are an effective way to save more for retirement, as the earnings on these contributions grow tax-deferred (like with pre-tax contributions).
Tip: Review your 401k plan document. If you have the capacity to save more for retirement beyond the limits set for pre-tax and Roth contributions, consider making after-tax contributions to your 401k plan if the plan allows it. You can often set your after-tax percentage savings election by logging in to your participant account through the plan provider’s website.
Mistake #4 – Not Converting After-Tax Contributions to Roth
As described above under Mistake #2, you can often make additional, after-tax contributions to your 401k plan. Taken a step further, some plans allow you to convert these contributions that have already been taxed to the Roth portion of the 401k plan, which can grow tax-free. If the after-tax contributions aren’t converted to Roth, their earnings grow tax-deferred and are subject to income taxes when withdrawn.
Tip: Review your 401k plan document. If allowable by the plan, consider immediately converting your after-tax contributions to the Roth portion of the plan once they’re deposited into your participant account. You can often process an in-plan Roth conversion by logging in to your participant account through the plan provider’s website. Some 401k plans may even offer automatic in-plan Roth conversions. However, it’s crucial to understand that earnings on your after-tax contributions will be taxed as ordinary income when converted. If possible, review this process with a qualified financial advisor before implementation.
Mistake #5 – Investing Too Much in the Stable Value Fund Option
Many 401k plans may offer a stable value fund option within their investment lineup that operates like a money market fund or savings account. As a cash equivalent holding, the fund’s price won’t fluctuate, but over long time periods the yield may not keep up with inflation. If you’re saving for long-term goals such as retirement, holding too much in the stable value fund may result in a loss of purchasing power.
Tip: Historically, investing in a well-diversified portfolio of stocks and bonds has proven to outpace inflation and maintain purchasing power over long periods, unlike cash equivalent holdings such as stable value funds. Your choice of investments in your 401k plan should align with your long-term goals and financial plan.
