Common 401k Missed Opportunities

In 2025, Americans averaged: 5.02 hours working, 9.03 hours sleeping, 1.99 hours on household chores, and 1.21 hours eating. For parents with children under age 6, childcare added another 2.3 hours daily (1.7 for working parents), leaving limited time for everything else.^{1 2}

Needless to say, employees today are busy and overwhelmed. A more startling statistic is that in 2025, only 30% of people engaged in socializing and communicating on an average day.³

That being said, people are overburdened and do not have the time to understand their 401(k). Naturally, this can open employees up to costly and avoidable mistakes with their 401(k).  

What are some of the most common mistakes employees make with their 401(k) plan?

Employees often make three common mistakes with their 401(k) plans. These missteps can lead to there being less funds in their 401k at retirement.

• Employees are withdrawing funds before retirement age.
  • Often, employees find themselves in debt and borrow from the 401(k) to pay down debt.
  • Another misstep is when employees change careers and move businesses. They are regularly cashing out during a rollover instead of leaving the funds invested and rolled over into a new plan.
• Contributing has a significant impact on retirement savings. Many employees are unaware of how and how much they contribute to their plan. They are either:
  • Not contributing enough funds.
  • Not contributing early enough.
  • Missing out on the employer match because they are failing to make the minimum contributions necessary to take advantage of employers' matching incentives.
• Investing in the appropriate funds is the next step to potentially maximizing retirement savings. Many employees make common mistakes that reduce their savings opportunities such as:
  • Leaving money in cash is one of the most straightforward issues. If the money is not invested in the market, there is no opportunity for growth.
  • Not diversifying investments could lead to added unnecessary exposure. A well-diversified investment portfolio is generally a best practice for those looking to optimize their long-term investment opportunities while decreasing their risk.
  • Today, many retirement plans offer tax-advantaged options. Understanding the tax implications of Roth vs. Pre-tax within the retirement plan is essential to optimize retirement funds from a tax perspective.

How to help your employees not fall for these common mistakes?

Employers and Employees agree that retirement savings are important and having the opportunity to save within an employer 401(k) is one of the best ways to do so. Eighty-one percent of employers rated retirement savings and planning benefits as “extremely important” or “very important” employee benefit.³

But with all the common mistakes that employees make, it’s hard to imagine a future in which employees are able to retire on time. As an employer, you must be open to new ideas that can help your employees save more. Here are a few simple solutions that can help optimize your plan to assist your employees and decrease the opportunities for mistakes.

1. Financial Education Programs — Offering a financial education program can help increase employees’ financial literacy. Credit counseling and budgeting tools can help employees understand how to pay down debt or avoid taking on new debt. Retirement education should also cover evolving Roth vs. pre-tax rules. For example, beginning in 2026, under SECURE 2.0, participants in plans with Roth features that offer catch-up contributions generally must make those catch-up contributions on a Roth basis if their prior-year wages with the plan sponsor exceeded $150,000 for 2026.⁴
2. Automatic Features — Automatic features within a plan, such as automatic enrollment, re-enrollment and escalation can help reduce the decision-making  burden on employees. Automatic enrollment allows an employer to automatically deduct elective deferrals from an employee’s wages unless the employee elects not to contribute or choose a different amount. Plan sponsors can increase 401(k) participation by adding automatic enrollment to a traditional 401(k) plan. Separately, under SECURE 2.0 Section 101, employers with 401(k) and 403(b) plans established on or after Dec. 29, 2022, must automatically enroll eligible employees beginning with plan years after 2024.⁵
3. Communication — Clear communication on plan details, updates, and changes is vital. Keeping your employees aware of all the updates and changes to the plan is also vital. Many employers offer an employee portal that allows individual employees who are interested in more information to seek that information on their own.
4. Employer Matching — An employer match incentivizes employees to save more because each percentage they save, they will equate to more money saved. One popular strategy is incentive matching or stretch matches, such as a 50% match up to 6%. This type of employer match encourages the employee to contribute a higher percentage. Depending on workforce needs, SECURE 2.0 also permits (if adopted) an employer match tied to qualified student loan payments⁶ , which can help employees who are prioritizing debt still receive matching contributions.
5. Tax-Smart Savings Features — Help employees understand Roth vs. pre-tax elections and how age-based “catch-up” contributions work, especially for higher earners. Beginning in 2026, SECURE 2.0 generally requires catch-up contributions (age 50+) to be made as Roth for participants whose prior-year FICA wages exceed $150,000⁷ from the employer maintaining the plan, so employers may want to confirm their plan can support Roth catch-ups and proactively communicate this change to affected employees.

A combination of plan design and education can go a long way toward helping your employees achieve their financial goals. As stewards of your business's retirement plan, it is important to be open to new ideas and not settle for the status quo. The current status quo has led to nearly 1 in 5 Americans age 65 and older still in the labor force.⁸

For some, working longer offers purpose or flexibility. For others, it’s necessary because they haven’t saved enough for retirement. The mistakes they made earlier in their career, such as taking withdrawals from their 401(k) or not contributing enough, are some of the leading reasons for this outcome. As employers, it is our duty to evaluate our plan to see if we are doing everything we can to help set up our employees for success. A retirement plan is not a set-it-and-forget-it; there are always ways that they can be optimized for your workforce.

If you are interested in helping your employees save more for retirement and avoid falling for these common 401(k) pitfalls, reach out to one of our OneDigital Retirement Plan Advisers today!

Investment advice offered through OneDigital Investment Advisors LLC. ID: 00696185

^Sources:

1. ^{U.S. Bureau of Labor Statistics: American Time Use Survey}
2. ^{U.S. Bureau of Labor Statistics: American Time Use Survey Summary}
3. ^{U.S. Bureau of Labor Statistics: American Time Use Survey News Release}
4. ^{SHRM: 7 Major Takeaways from SHRM's 2025 Employee Benefits Survey}
5. ^{IRS: Retirement Topics - Catch-Up Contributions}
6. ^{National Association of Plan Advisors: Automatic Enrollment Regs Under SECURE 2.0 Expected Soon}
7. ^{Notice 2024-63: Guidance Under Section 110 of the SECURE 2.0 Act with Respect to Matching Contributions Made on Account of Qualified Student Loan Payments}
8. ^{IRS: Retirement Topics - Catch-Up Contributions}
9. ^{U.S Bureau of Labor Statistics: TED: The Economics Daily}