As a high-earning tech professional, your 401(k) is often the single largest financial asset you control outside of your home. However, even high-income earners fall into common traps—not just with the mechanics of their 401(k), but with broader investment strategies.
These issues usually come from complexity + convenience + confidence. The combination can compound into surprisingly costly long-term gaps.
Table of Contents
- 401(k) Participation and Contribution Mistakes
- Advanced Portfolio & Investment Mistakes
- The Value of Proactive Management
401(k) Participation and Contribution Mistakes
These errors focus on the administrative and contribution side of your plan.
Mistake 1: Not Capturing the Full Employer Match
This is the most fundamental mistake. If your employer offers a matching contribution (e.g., 50% up to 6% of your salary), failing to contribute enough to capture the full match is essentially refusing a guaranteed, risk-free return.
Mistake 2: Not Re-Evaluating Roth vs Traditional Over Time
Most tech workers have both options — pre-tax (Traditional) and after-tax (Roth). Choosing between them depends on tax expectations, which change through your career. High-income earners may be more likely to benefit from Roth early and late in their careers — but not always. This should be revisited periodically.
- Traditional: Best if you expect to be in a lower tax bracket in retirement than you are now.
- Roth: Best if you expect to be in a higher tax bracket in retirement (likely for high-income tech earners) because all withdrawals will be tax-free.
Failing to choose the option that aligns with your future tax bracket is a major missed opportunity for tax-free growth. This decision can, will, and should change over the course of your career.
Mistake 3: Stopping Contributions at the Match (Under-Saving)
While getting the match is essential, stopping there is a mistake if you have aggressive wealth-building goals. For high earners, maximizing the annual contribution limit (which typically resets yearly) is the best way to leverage tax-deferred growth.
Mistake 4: Cashing Out or Borrowing When Changing Jobs
When you switch jobs, cashing out your old 401(k) balance is financially detrimental.
- Taxes & Penalties: You will pay ordinary income tax plus a 10% early withdrawal penalty if you are under age 59½.
- Lost Growth: You lose decades of tax-advantaged compounding.
The Fix: Always execute a direct rollover to an IRA or your new employer’s plan.
Advanced Portfolio & Investment Mistakes
These errors move beyond the 401(k) basics and address investment management strategies where a Fee-Only RIA provides critical value.
Mistake 5: Over-Concentration in Company Stock (The Tech Trap)
This is a high-impact risk for many tech professionals. You might have received company stock (RSUs, ESPP) and also invested heavily in company stock within your 401(k). Diversification is not optional here — it is risk management.
- The Risk: Your paycheck, annual bonus, and retirement savings are all tied to the success of one company. If that stock declines significantly, your wealth and your job security are hit simultaneously.
- The Fix: Use your 401(k) to aggressively diversify away from your company stock. Work with an advisor to implement a tax-efficient diversification strategy for your shares in brokerage accounts.
Mistake 6: Making Emotional Decisions (Chasing Performance)
This is a general investing mistake that high earners often succumb to due to overconfidence or FOMO (Fear of Missing Out).
- The Trap: Selling during a market panic or loading up on a “hot” sector or stock because a colleague or headline suggested it.
- The Fix: Create and adhere to an Investment Policy Statement (IPS). Your investment strategy should be based on your long-term goals and risk tolerance, not short-term market noise.
Mistake 7: Ignoring Investment Fees and Expense Ratios
High fees, even if they seem small, can erode your long-term wealth by hundreds of thousands of dollars.
- The Trap: Choosing actively managed mutual funds within your 401(k) with expense ratios above 0.50% when a similar, low-cost index fund (e.g., 0.05%) is available.
- The Fix: Always prioritize low-cost, passive index funds to minimize expense ratios and maximize returns over the long term.
Mistake 8: Failing to Rebalance Periodically
Even a perfectly allocated portfolio will drift over time as some assets grow faster than others.
- The Trap: If stocks have a great year, your portfolio may become heavily weighted to stocks, making it much riskier than your target risk tolerance.
- The Fix: Commit to rebalancing (selling high, buying low) annually or semi-annually to bring your portfolio back to your intended risk level.
The Value of Proactive Management
As your income and wealth grow, the complexity and potential cost of investment errors increase dramatically. Avoiding these nine common errors is the foundation of building lasting financial security.
If managing your 401(k) asset allocation, executing a tax-efficient diversification plan for your company stock, or implementing a robust asset location strategy feels overwhelming, a Fee-Only RIA can help streamline these decisions and optimize your path to financial freedom. This article is for educational purposes only. Always consult with a qualified financial or tax professional to discuss your unique personal circumstances.