Retirement accounts are a cornerstone of financial security, but managing them incorrectly can lead to costly mistakes. As 2025 brings new rules and opportunities for retirement planning, it’s more important than ever to avoid common pitfalls that could derail your golden years. Let’s explore the missteps you should watch out for — and how to sidestep them.

1. Ignoring new contribution limits

One of the most significant changes in 2025 is the increase in contribution limits for retirement accounts. For 401(k)s, the standard limit is projected to rise to $23,000, with catch-up contributions for those aged 50 and older offering even more opportunities to save.

The mistake? Not taking full advantage of these limits. Every dollar you leave uninvested is a missed opportunity for tax-deferred or tax-free growth. If you’re 60-63, the SECURE 2.0 Act allows an additional $10,000 in catch-up contributions, adjusted for inflation. Don’t let these expanded limits pass you by — it’s like leaving free money on the table.

2. Withdrawing funds too early

Early withdrawals from retirement accounts are a common pitfall. Tapping into your IRA or 401(k) before age 59 ½ often results in a 10% penalty, plus income taxes on the amount withdrawn.

Consider this: A $10,000 early withdrawal could shrink to $7,000 after penalties and taxes, depending on your tax bracket. That’s a steep price to pay for immediate cash. If you’re facing an emergency, explore alternatives like emergency savings accounts linked to your retirement plan. These accounts, introduced in 2025, let you set aside up to $2,500 annually for unexpected expenses without penalties.

3. Failing to diversify investments

Putting all your eggs in one basket is a recipe for trouble. Whether it’s overloading on company stock or leaning too heavily on one type of investment, lack of diversification can leave your portfolio vulnerable to market swings.

A balanced portfolio spreads risk across asset classes like stocks, bonds and annuities. Diversification is like having a financial safety net — it doesn’t eliminate risk, but it cushions the blow when markets wobble.

4. Neglecting Roth conversions

Roth IRAs are becoming increasingly attractive, especially with potential tax changes on the horizon. Converting some of your traditional IRA funds into a Roth IRA in 2025 could lock in today’s tax rates, allowing your money to grow tax-free and providing tax-free withdrawals in retirement.

The mistake? Overlooking the strategic timing of Roth conversions. If you expect higher tax rates in the future or have a low-income year, a Roth conversion could be a smart move. Just be mindful of the tax implications and consult with a financial advisor before making the switch.

5. Forgetting required minimum distributions (RMDs)

The SECURE 2.0 Act has extended the age for RMDs to 73 in 2025 and will further increase it to 75 by 2033. While this delay provides more time for tax-deferred growth, forgetting to take RMDs when required can result in hefty penalties — up to 25% of the amount not withdrawn.

Missing an RMD isn’t just a costly mistake; it’s entirely avoidable. Set reminders, automate withdrawals or work with your financial institution to stay on track.

6. Overlooking beneficiary designations

Life changes — marriages, divorces, births and deaths — mean your beneficiary designations need regular updates. Failing to review these can lead to unintended consequences, such as assets going to an ex-spouse or bypassing your intended heirs.

This mistake can be heartbreaking for families. Regularly reviewing and updating your designations ensures your retirement savings go exactly where you want them.

7. Not adjusting for inflation

Inflation is the silent killer of purchasing power, and ignoring it can erode the value of your retirement savings over time. With inflation hovering around 3% in July 2024, failing to account for rising costs can leave you struggling to maintain your lifestyle.

Strategies like investing in fixed index annuities or adjusting your portfolio to include growth-oriented assets can help you keep pace with inflation. Don’t let your retirement income lag behind rising prices.

8. Overcomplicating your strategy

Sometimes, the biggest mistake is making things too complicated. Juggling multiple accounts, over-analyzing investments or chasing high returns can lead to stress and poor decisions.

A simple, well-balanced plan tailored to your goals is often the best approach. As I always tell clients, “The best plan is the one you’ll stick with.” Streamlining your accounts and focusing on core strategies can make retirement planning more manageable.

9. Procrastinating regular reviews

Retirement planning isn’t a “set it and forget it” endeavor. Failing to review your accounts regularly can mean missing opportunities or overlooking potential issues. Economic conditions, tax laws and personal circumstances change, and your plan should adapt accordingly.

Aim to review your retirement strategy annually, or whenever a significant life event occurs. A quick check-in can save you from costly surprises down the road.

A personal perspective on mistakes

Over the years, I’ve seen how small missteps can have big consequences. One client delayed updating their beneficiary designations, only to have their retirement assets go to a distant relative instead of their intended heir. Another withdrew funds early, incurring penalties that set back their savings by years.

Mistakes like these are avoidable with proper planning and attention to detail. Retirement accounts are powerful tools — but only if you use them wisely.

Practical steps to avoid mistakes

1. Stay informed: Keep up with changes in tax laws and contribution limits.
2. Automate where possible: Set up automatic contributions, reminders for RMDs and regular account reviews.
3. Consult a professional: A financial advisor can help you navigate complexities and tailor strategies to your goals.
4. Think long-term: Focus on steady growth and preservation over chasing short-term gains.

Conclusion

Managing retirement accounts in 2025 comes with new opportunities — and potential pitfalls. By staying informed, diversifying your investments and avoiding common mistakes like early withdrawals or neglected RMDs, you can protect your savings and build a secure financial future.

Retirement planning doesn’t have to be overwhelming. With the right strategies and a bit of diligence, you can avoid these missteps and make the most of your hard-earned savings. After all, the goal is to enjoy your retirement, not stress about it. Make smart choices today so you can reap the rewards tomorrow.

Lyle Boss, The REAL BOSS Financial, endorsed by Glenn Beck as the premier retirement advisor for Utah and the Mountain West states. Boss Financial, 955 Chambers St., Suite 250, Ogden, UT 84403. Telephone: 801-475-9400.