The 401(k) has been around for 46 years, and in that time, it has become the dominant workplace retirement plan employees of all ages use to save for their futures. Despite this, many still don’t understand all the ins and outs of their plans or the best strategies to help them maximize their savings’ growth.

Each generation has made its share of 401(k) mistakes. The good news is, for many, there’s still time to correct these errors. Here are the biggest problems each generation has faced, based on a recent Fidelity survey, and how to correct it.

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Baby boomers: Not embracing the Roth 401(k)

Baby boomers saw the first 401(k)s in 1978, and most have stuck with these traditional plans to the present day. There’s nothing wrong with this. A traditional 401(k) can still be a good retirement plan, especially for those who expect to be in a lower tax bracket in retirement. By delaying taxes until you withdraw your savings in retirement, you might save yourself some money.

But Roth 401(k)s can have their place in a retirement plan too. You fund these 401(k)s with after-tax dollars, so you pay taxes on your contributions this year. But this lets you withdraw the money tax-free in retirement, as long as you’re at least 59 1/2 years old and have had the 401(k) for at least five years at the time. If you qualify for a 401(k) match, these may be after-tax funds as well, but more often they’re pre-tax.

Roth 401(k)s have only been around since 2006, which could explain why only 12% of baby boomers are currently contributing to one. Many boomers are in or already past their peak earning years, so traditional 401(k)s may be more advantageous to them than Roth 401(k)s, which would require them to pay taxes on their contributions upfront.

Another issue could be the lack of availability of Roth 401(k)s. They’ve become increasingly common, but many employers still don’t offer them to employees. If you want a Roth account, you may have to open a Roth IRA on your own at a brokerage.

Gen Xers: Taking 401(k) loans

A 401(k) loan is often a wiser play than an early withdrawal, which triggers income taxes, plus a 10% penalty tax if you’re under age 59 1/2 at the time. These loans let you pay back what you borrow with interest and you don’t need a credit check to do it. As long as you pay your loan back on time, the government won’t consider it a distribution.

This could make 401(k) loans appealing for Gen X workers, many of whom are pressed for cash as they try to care for both their aging parents and their children financially. More than a quarter of Gen Xers currently have a 401(k) loan outstanding, according to the Fidelity survey. But although these loans can be convenient, they can also be a threat to your retirement security.

If you quit your job or get fired, your entire loan balance becomes due at once. The IRS considers any part of the loan you don’t pay back on time to be a distribution and taxes you accordingly.

Even if you manage to make all your payments as scheduled, you’ll probably still wind up with a smaller balance than you would have had if you’d just left your money in your 401(k) instead of taking the loan. It might not always be possible, but it’s best to seek out other types of credit when you need extra cash and consider 401(k) loans as a last resort.

Millennials and Gen Zers: Not saving enough and investing exclusively in target-date funds

The newest entrants to the workforce, millennials and Gen Zers find themselves facing similar struggles with their 401(k)s. The biggest issue is their savings rates. The Fidelity survey found that millennials are saving 8.6% of their salaries on average, while Gen Z workers are saving 7.6%. When you add in each generation’s 4.6% and 3.8% average 401(k) match, respectively, you get a 13.2% contribution for millennials and an 11.4% contribution for Gen Zers.

These numbers aren’t bad, but ideally, they’d be a little closer to 15%. But considering that many in these generations are struggling with mountains of student debt, saving anything at all is an accomplishment to be proud of. As their salaries grow, they will hopefully be able to step up their savings rate accordingly.

The other thing for millennials and Gen Zers to take a closer look at is what they’re investing in. More than 70% of millennials and 82% of Gen Zers reported investing exclusively in target-date funds. These funds are great for those who want hands-off investments. But they’re not always your best option.

Target-date funds can have high fees that eat into your profits over time. It’s worth exploring your other investment options before defaulting to one of these. For example, if you have access to an index fund, this could help you grow your wealth while keeping fees to a minimum.

If you’ve made any of the above 401(k) mistakes, that’s OK. Unless you plan to retire in the next few months, you have time to correct it. Figure out what changes you want to make for 2025 and put them into action as quickly as possible.

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