10

Underfunding your 401(k)
Cost: $36,000

This year, workers younger than 50 can put up to $15,500 into a 401(k); those over 50 can make an additional "catch up" contribution of up to $5,000. On average, workers contribute considerably less than their allowable limit. You can't make retroactive contributions, so each dollar not contributed this year is an opportunity you've lost forever. You also lose the opportunity to earn income on those tax-deferred dollars.

We used the hypothetical worker in Ignoring Roth accounts to see how the numbers add up. Making the maximum contribution each year for 20 years allowed our hypothetical worker to postpone paying about $55,000 more in taxes (compared with someone at the average contribution level of about 7 percent of income). The tax-deferred earnings on that amount, assuming annual returns of 7 percent, would come to roughly $45,000 over 20 years. Even after paying taxes on those earnings, and adjusting for inflation, our worker is still ahead by some $36,000.

What you can do. Contribute as much as you can afford to your 401(k) and don't miss out on the catch-up provisions once you're eligible.