Common 401(k) Mistakes and How to Avoid Them
What most of the higher-earning households I work with want, when they ask me to look at their 401(k), is confidence that the autopilot is set up correctly. They have the basics covered. They want to know what they are missing.
Most of the time, they are missing at least one thing and often three or four. The mistakes are rarely catastrophic in isolation. The compounded effect over a 25- to 30-year career is what makes them worth flagging.
As a CERTIFIED FINANCIAL PLANNER® (CFP®) professional running a fee-only fiduciary firm in Nashville, my goal in writing this is to walk through the 401(k) mistakes that show up at higher income levels specifically. The mechanics shift when you are coordinating multiple plans, equity comp, or a self-employed retirement plan stacked on top of a W-2 401(k).
Mistake 1: Stopping at the Match
For higher earners, "contribute enough to capture the match" is the floor, not the goal. The 2026 employee contribution limit is $24,500, with an $8,000 catch-up at age 50 and an $11,250 catch-up at ages 60 to 63. For most of the clients I work with, getting to the full $24,500 (and beyond, via mega backdoor Roth where the plan allows) is the real target.
The mistake is treating the match contribution as "the savings rate" rather than the floor. A household earning $300,000 with two earners and "I get my match" as the retirement plan is dramatically undersaving relative to their lifestyle, even if it feels disciplined relative to the median worker.
Mistake 2: Ignoring the Mega Backdoor Roth
If your 401(k) allows after-tax contributions beyond the $24,500 limit, and allows either in-plan Roth conversions or in-service withdrawals to a Roth IRA, you have access to the mega backdoor Roth strategy. The total 401(k) annual addition limit for 2026 is $72,000 (IRS Notice 2025-67). The gap between your elective deferral plus employer match and that $72,000 ceiling is where after-tax dollars can go.
For households in the 32 or 35 percent bracket who are already maxing standard contributions, this is one of the highest-impact tax-advantaged savings strategies available. The mistake is not knowing it exists, or assuming the plan does not allow it without actually checking. I recommend pulling the plan's Summary Plan Description and looking specifically for "after-tax" contributions (separate from Roth) and "in-plan Roth rollovers."
Mistake 3: Treating Asset Location as Irrelevant
For a household with $1.5 million across a 401(k), a Roth IRA, and a taxable brokerage, the same overall asset allocation can produce meaningfully different after-tax results depending on which assets sit in which account.
Generally speaking, the principles I would apply:
Tax-inefficient holdings (bonds, REITs, high-turnover funds) go in tax-deferred space.
Tax-efficient broad-market equity ETFs (VTI is a common default) go in taxable accounts where qualified dividends and long-term capital gains get preferential treatment.
High-growth holdings with long time horizons go in Roth space when possible to maximize the tax-free compound runway.
Most clients arrive with these mixed up because they were never told it mattered. The cleanup is usually a multi-year process to avoid triggering large taxable events.
Mistake 4: Old 401(k)s and the Pro Rata Trap
Across the prospective clients I see, a typical pattern is two to four old 401(k)s sitting at former employers, mostly forgotten, often in higher-cost legacy share classes. The Rollover IRA solution is straightforward, but the timing matters.
A consideration that does not get talked about enough: rolling old 401(k)s into a Traditional IRA eliminates the ability to do a clean backdoor Roth contribution later, because of the pro rata rule on existing pre-tax IRA balances. For high earners likely to use the backdoor Roth in retirement years, rolling pre-tax 401(k) dollars into your current 401(k) (assuming the plan allows incoming rollovers) is generally preferable to rolling them into a Traditional IRA.
Doing the obvious thing (consolidate everything into one IRA) can close the door on a $7,500-a-year tax-advantaged savings strategy. The destination of rollovers matters.
Where Professional Guidance Adds Value
The 401(k) is presented to most employees as a simple, default-driven account. For higher-earning households with real complexity, that framing leaves real money on the table. The high-impact areas:
Coordinating the 401(k) with the rest of the household balance sheet for tax efficiency.
Identifying mega backdoor Roth eligibility and structuring the strategy across plan years.
Asset location across pre-tax, Roth, and taxable accounts.
Timing of Roth conversions in lower-income years or pre-RMD windows.
Old 401(k) cleanup with attention to the backdoor Roth implications.
Beneficiary and estate alignment, since beneficiary designations override your will for retirement assets.
For the consumer-facing version of this post, including the 30-minute audit checklist, head over to Melby Money.
Worth saying clearly: roughly 71 percent of the people who schedule a first conversation with us have never worked with a financial advisor before. That is exactly who we work with. If you have been running your 401(k) on autopilot and want a second set of eyes on it, that is most of our first conversations.
About The Author
Shaun Melby, CFP® provides fee-only financial planning and investment management services in Nashville, TN through his company Melby Wealth Management. Shaun has over 15 years of experience as a financial advisor in Nashville. Shaun created Melby Money to educate the public about finances.
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