2026–2027 Updates: Eight Things NOT to Do With Your 401(k) and IRA

Key Takeaways

Never borrow from your 401(k) unless it's a last resort - the true cost includes lost compounding, double taxation on repayment, and a potential tax bomb if you leave your job.
Contributing only to the company match minimum is one of the most common retirement undersaving mistakes - aim for 12-15% of income including employer contributions.
Don't cash out when you change jobs. A direct rollover to an IRA or new employer plan avoids income taxes and the 10% early withdrawal penalty.
If you're aged 60-63, SECURE 2.0 gives you a super catch-up of $11,250 for 401(k) contributions in 2026 - many people are missing this entirely.
Stale or missing beneficiary designations on retirement accounts override your will - an ex-spouse or deceased parent listed as beneficiary gets the money regardless of what your estate plan says.

Everyone who has a 401(k) or IRA has read the standard playbook: invest regularly, diversify, keep costs low. Good advice, all of it. But knowing what not to do is just as important — and some of the most expensive mistakes are the ones that feel reasonable in the moment.

Here are eight of the biggest ones, updated for 2026.

Covered in this Article:

1. Borrowing From Your 401(k)

A 401(k) loan looks attractive: no credit check, reasonable interest rates, quick access. But the true cost is higher than it appears.

You repay the loan with after-tax dollars — meaning that money gets taxed twice. Once when you earn it and use it to repay, and again when you withdraw it in retirement. Meanwhile, the money you borrowed stops compounding.

The worst scenario: Jack had $50,000 in his 401(k) and borrowed $25,000 for a car. A month later he left his job. The outstanding loan balance became immediately due, and after required 20% withholding and automatic repayment, Jack got a check for $15,000 — then owed income taxes plus a 10% early withdrawal penalty on top. He ended up with under $10,000, a car, and no retirement savings.

If you leave your employer with an outstanding 401(k) loan in 2026, you generally have until the tax filing deadline for that year (including extensions) to repay it or roll it into an IRA — or it becomes a taxable distribution. Explore every other option before touching your retirement account.

2. Stopping at the Company Match

If your employer offers a match, contribute at least enough to capture it — that’s free money and there’s no excuse to leave it on the table. But stopping there is a mistake I see a lot.

The match gets you to maybe 4–6% of income total. Most financial planners suggest 12–15% (including employer contributions) to maintain your standard of living in retirement. The gap between “I’m getting the match” and “I’m actually on track” is often larger than people realize, especially for workers who started late or had gaps in employment.

If maxing out feels out of reach, increase by 1% each year — most people don’t notice the reduction in take-home pay after the first month.

3. Chasing Hot-Performing Funds or Asset Classes

Every few years a new asset class becomes the obvious trade: tech stocks in 1999, real estate in 2006, crypto in 2021. The pattern is always the same — by the time something feels like a sure thing, most of the gain has already happened.

In a 401(k) or IRA, chasing performance is especially costly because the tax-advantaged status doesn’t protect you from the timing risk. Pick a diversified mix of stocks, bonds, and short-term reserves appropriate for your timeline, and stick to it through market cycles. The evidence strongly favors boring and consistent over exciting and reactive.

4. Being Too Conservative (Ignoring Inflation Risk)

The opposite mistake is just as damaging over a long time horizon. Parking everything in money market funds or stable value funds feels safe — but you’re trading the risk of losing money for the certainty of losing purchasing power.

Over a 20- or 30-year retirement, inflation at even 2.5% per year cuts your purchasing power nearly in half. Stocks have historically outpaced inflation over long periods; bonds and cash haven’t, reliably. If your entire retirement account is in “safe” investments, reconsider the allocation — especially if you’re still 10+ years from retirement.

5. Cashing Out When You Leave an Employer

This is the most expensive impulsive decision in personal finance. When you leave a job and get a check representing your 401(k) balance, it feels like found money. It isn’t.

Cash out and you owe ordinary income taxes on the full amount plus a 10% early withdrawal penalty if you’re under 59½. On a $60,000 balance, that could easily cost $20,000+ in taxes and penalties. Do a direct rollover to a traditional IRA or your new employer’s plan instead — no taxes, no penalties, the money keeps compounding.

Subscribe or follow us — I’ll update this page when new 2027 limits and rules are released.

6. Trying to Time the Market

No one does this reliably. Not professional fund managers with Bloomberg terminals and teams of analysts, and not individual investors checking their 401(k) balance on their phone. Frequent in-and-out moves generate trading costs, potential tax drag (in taxable accounts), and almost always result in missing the best days — which tend to cluster right around the worst days.

The single most powerful thing a 401(k) investor can do is automate contributions and not look at the balance during market downturns. Time in the market, not timing the market.

7. Missing the Ages 60–63 Super Catch-Up (New Under SECURE 2.0)

This one is new and a lot of people are completely unaware of it.

Starting in 2025, SECURE 2.0 created an enhanced catch-up contribution for savers aged 60, 61, 62, and 63. Instead of the standard $8,000 catch-up for those 50+, this group can contribute an additional $11,250 to a 401(k), 403(b), or governmental 457 plan — bringing the 2026 total to $35,750 ($24,500 base + $11,250).

The window is specific: it only applies at exactly ages 60–63. At 64 you step back down to the $8,000 catch-up. If you’re in this window and haven’t checked whether your plan has enabled the super catch-up, call HR or your plan administrator now. Some smaller plans haven’t implemented it yet.

See the 2026 401(k) catch-up contribution limits post for the full breakdown.

8. Neglecting Beneficiary Designations

Your 401(k) and IRA don’t pass through your will. They go directly to whoever is listed as the beneficiary on the account — and that designation overrides everything: your will, your trust, your verbal intentions.

This becomes a real problem when designations are stale. An ex-spouse from a 1998 divorce, a parent who died a decade ago, or simply a blank form on file will create a mess — or worse, send your retirement assets somewhere you never intended. A minor listed as a primary beneficiary without a trust creates legal complications at the worst possible time.

Review your beneficiaries any time there’s a major life event: marriage, divorce, birth, death. It takes five minutes in your plan portal or broker account. I’d also add a calendar reminder to check them every five years regardless of life changes — it’s that easy to overlook.

Common Issues to Watch Out For

A few patterns I’ve seen come up repeatedly:

Overlooking the Roth option inside your 401(k). Many plans now offer a Roth 401(k), and most people default to traditional (pre-tax) without thinking about it. Whether Roth or traditional is better depends on your current vs. expected future tax rate — worth 10 minutes of thought rather than just accepting the default.

Letting auto-enrollment defaults stick. Most employers enroll you at 3–4% by default. That’s a start, but far below where you should be. The auto-enrollment rate is designed to minimize opt-outs, not to actually fund your retirement. Override it.

Ignoring the fund expense ratios. A 1% annual fee vs. a 0.05% index fund on a $200,000 balance over 20 years is a difference of roughly $60,000+. Check your expense ratios and favor low-cost index funds where available.

Looking Ahead: 2027

The super catch-up amount ($11,250 in 2026) is indexed for inflation — expect a modest increase in 2027. The base 401(k) limit of $24,500 and IRA limit of $7,500 are also inflation-indexed and typically updated in October or November each year. I’ll update the dedicated contribution limits posts as soon as the IRS releases 2027 figures.

No major structural rule changes are expected for 2027 — the SECURE 2.0 provisions are now in place and fully phased in.

Frequently Asked Questions

QWhat happens to my 401(k) loan if I lose my job?

AIf you leave your employer (voluntarily or not) with an outstanding 401(k) loan, the balance becomes due. You generally have until the tax filing deadline for that year (including extensions) to repay it or roll the outstanding amount into an IRA. If you can't repay, the remaining balance is treated as a taxable distribution - you'll owe income tax on it, plus a 10% early withdrawal penalty if you're under 59½.

QHow much should I be contributing to my 401(k) in 2026?

AThe IRS maximum for 2026 is $24,500 (plus $8,000 catch-up if you're 50+, or $11,250 if you're aged 60-63). As a practical goal, aim for 12-15% of your gross income including any employer match. If that's not achievable right now, start where you can and increase by 1% per year. At minimum, always contribute enough to capture the full employer match.

QIs it ever okay to cash out a 401(k)?

AVery rarely. Cashing out triggers income taxes on the full amount plus a 10% penalty if you're under 59½ - on a $50,000 balance, that can easily cost $15,000-$20,000. The much better option is a direct rollover into an IRA or your new employer's plan, which preserves the balance and keeps it growing tax-deferred. The only situation where cashing out might be unavoidable is a genuine financial emergency with no other options.

QWhat is the SECURE 2.0 super catch-up for ages 60-63?

AUnder SECURE 2.0, workers aged 60, 61, 62, or 63 can contribute an extra $11,250 to a 401(k), 403(b), or governmental 457 plan in 2026 - instead of the standard $8,000 catch-up available to those 50 and older. Combined with the $24,500 base limit, that's $35,750 total for this age group. The higher limit applies only during the 60-63 window; at 64 it reverts to $8,000. Check with your plan administrator to confirm it's enabled - not all plans have activated it yet.

QWhy do beneficiary designations matter so much for retirement accounts?

ABecause 401(k)s and IRAs pass outside of your estate - they go directly to whoever is named as beneficiary, regardless of what your will says. A stale designation (ex-spouse, deceased parent, or simply an old form) can send your retirement savings somewhere you never intended, and courts generally can't override it. Review beneficiaries after any major life event and at least every five years as a general checkup.

QShould I contribute to a Roth or traditional 401(k)?

AIf your employer's plan offers both, the choice comes down to whether your current tax rate is higher or lower than what you expect in retirement. Traditional (pre-tax) contributions make more sense if you're in a high bracket now and expect lower income in retirement. Roth contributions (after-tax) make more sense if you expect to be in a higher bracket later, or if you want tax-free income in retirement. Many people in their 30s and 40s benefit from Roth; those in peak earning years often favor traditional. Both types can coexist in the same plan.

QWhat is the biggest 401(k) mistake people make?

ACashing out when changing jobs is the single most expensive mistake - it's immediate, irreversible, and the taxes and penalties hit right away. The second biggest is contributing only enough to get the match and assuming that's sufficient. Both feel like minor decisions at the time but can mean tens of thousands of dollars less at retirement.