3 Signs You're Not Getting the Most From Your 401(k)

2026-03-03 10:33:16

If you’re contributing regularly to a 401(k) through your employer, you’re already doing a good thing for your retirement. But that doesn’t mean your work is done.

It’s not enough to pump money into your 401(k) plan every month. You also need to make sure you’re making the most of that account. And if any of these signs apply to you, you may be losing out on some big 401(k) benefits.

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You’re letting some or all of your employer match go

Many companies offer to match worker 401(k) contributions to some degree. If yours has a matching policy and you’re not taking full advantage of it, you’re missing out – and potentially losing more money than you’d think.

Imagine your employer will match up to $5,000 in contributions this year, but you only put $3,000 into your 401(k). You might think you’re giving up $2,000.

But what if you’re 30 years away from retirement and your portfolio gives you an 8% return each year, which is below the market’s average? Suddenly, by not grabbing that extra $2,000, you could be losing out on more than $20,000 when you factor in gains on that sum.

That’s why it’s best to do whatever it takes to snag your workplace match in full. You may need to cut spending or work a side job. But if you make that effort, you may be rewarded for it beyond your expectations when you consider what those matching dollars could grow into.

You’re investing in your plan’s default fund

If you don’t choose investments for your 401(k), your money might land in a target date fund. That’s not a bad thing – if you’re OK with investing conservatively and paying high fees in the process. If that doesn’t sound great, then it’s important to actively choose investments.

Most 401(k) plans offer the option of an S&P 500 index fund, or a similar low-cost, broad market fund. Investments like these give you exposure to a range of established businesses without forcing you to do much legwork.

Now if you go all in on an S&P 500 index fund, or something similar, you’ll need to make a point to rebalance once retirement gets closer. With a target date fund, that rebalancing gets done for you. But you should rethink a target date fund if that’s where your money has landed if you don’t want high fees and slower growth to derail your retirement plans.

You’re not exploring a Roth

Years back, it was harder to find a Roth savings option in a 401(k). Nowadays, Roth 401(k)s are very common. And while you don’t get an up-front tax break on contributions with a Roth 401(k), you get the benefit of tax-free gains and withdrawals.

You may especially want to consider a Roth 401(k) if you’re earning a fairly entry-level salary and therefore aren’t in a high tax bracket. As your earnings increase, a Roth may no longer make sense from a tax perspective. But for now, it pays to utilize a Roth to set yourself up with tax-free income in retirement.

Funding your 401(k) every month isn’t enough to make the most of that account. Also make sure you’re claiming your company match in full, investing strategically, and choosing the right 401(k) type from a tax perspective.

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