3 Common 401(k) Mistakes to Avoid

Educational Topics
Written By Trey Kerns

Educational note: This material is for general educational purposes only and should not be considered personalized investment, tax, legal, or financial advice. Investing involves risk, including the potential loss of principal. Past performance does not guarantee future results. Kerns Legacy Planning does not provide tax or legal advice. Readers should consult qualified tax and legal professionals regarding their specific circumstances.

401(k) Planning, Retirement Investing & Wealth Management Insights

For many employees, a 401(k) can be an important part of a long-term retirement savings strategy.

However, simply contributing does not always mean the account is being reviewed in the context of risk tolerance, time horizon, fees, tax treatment, employer match, and broader financial goals.

Below are three common 401(k) planning issues worth reviewing.

1. Selecting Investments Without a Strategy

One common 401(k) issue is selecting funds without reviewing how they fit within an overall strategy.

Many individuals:

  • Choose funds randomly from the plan menu

  • Split contributions evenly across available options

  • Default into target-date funds without reviewing suitability

While these approaches may seem harmless, they often lead to portfolios that are not aligned with your:

  • Risk tolerance

  • Time horizon

  • Retirement income goals

A Better Approach

A more intentional review may include:

  • Understanding the purpose of each investment option selected

  • Reviewing whether the allocation fits time horizon and risk tolerance

  • Evaluating whether the account should be rebalanced periodically based on plan rules and personal circumstances

2. Not Increasing Contributions Over Time

Another common mistake is setting a contribution rate early in your career—and never revisiting it.

As income increases over time, contribution rates often remain stagnant. This can lead to:

  • Lost compounding growth opportunities

  • Falling short of retirement savings goals

  • Underutilization of tax-advantaged retirement accounts

A Better Approach

Contribution rates should be reviewed periodically as income, expenses, taxes, debt, and goals change.

Common planning questions include:

  • Has income changed since the contribution rate was first selected?

  • How does the employer match work?

  • Does the current contribution rate fit cash flow and other savings priorities?

  • Would future raises, bonuses, or commissions create an opportunity to revisit savings goals?

Even small changes may matter over long time horizons, but contribution decisions should be made in the context of the full financial picture.

3. Ignoring the Account Altogether

Many investors adopt a “set it and forget it” approach to their 401(k).

While automation is helpful, complete neglect can lead to:

  • Misaligned risk exposure

  • Outdated investment allocations

  • Missed opportunities to optimize retirement planning

A Better Approach

A periodic 401(k) review may help identify whether the account remains aligned with current goals and circumstances.

Key times to review include:

  • Job changes

  • Major life events (marriage, home purchase, children)

  • Significant market movements

Periodic reviews may help determine whether the account remains aligned with long-term objectives, risk tolerance, and the broader financial plan.

Final Thoughts

For many employees, a 401(k) can be an important component of a long-term retirement strategy.

Used thoughtfully, a 401(k) may support long-term retirement planning. Left unreviewed, it may drift away from the investor’s current goals, risk tolerance, or broader financial plan.

Questions Worth Reviewing

If you are unsure whether your 401(k) still fits your broader plan, it may be helpful to review:

  • Current contribution rate

  • Employer match rules

  • Roth versus Traditional options, if available

  • Investment allocation

  • Fees and available plan options

  • Beneficiary designations

  • How the account fits with other retirement assets

The goal is not to make changes for the sake of activity. It is to understand whether the account still supports the larger retirement plan.

Sources

Disclosure: This material is for general educational purposes only and should not be considered personalized investment, tax, legal, or financial advice. Investing involves risk, including the potential loss of principal. Past performance does not guarantee future results. Kerns Legacy Planning does not provide tax or legal advice. Readers should consult qualified tax and legal professionals regarding their specific circumstances.

Trey Kerns https://KernsLegacyPlanning.com
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