Why Is My 401(k) Not Growing? Common Reasons and Fixes

A 401(k) is designed to grow over time, building financial security for retirement. If your balance isn’t increasing as expected, several factors could be limiting its growth, from how your investments are structured to market conditions. Understanding these obstacles can help you make smarter decisions to improve performance.

Inadequate Asset Allocation or Diversification

How your investments are distributed across asset classes affects growth. If too much of your portfolio is concentrated in a single investment, such as company stock or a narrow sector, your account may be exposed to unnecessary risk. A well-balanced mix of stocks, bonds, and other assets can help smooth out returns.

Age and risk tolerance should guide investment choices. Younger investors typically benefit from a higher percentage of stocks, which have greater long-term growth potential. As retirement nears, shifting toward more stable assets like bonds helps preserve accumulated wealth. Many 401(k) plans offer target-date funds, which automatically adjust asset allocation based on your expected retirement year.

Failing to rebalance your portfolio periodically can also hinder growth. Over time, certain investments may outperform others, causing your original allocation to shift. If stocks surge, for example, your portfolio may become too aggressive. Rebalancing—either manually or through an automatic feature in your plan—helps maintain your intended level of risk and return.

High Account Fees

401(k) fees can quietly reduce long-term returns. While they may seem small—typically expressed as a percentage of assets—they compound over time. Even a minor difference in fees can cost thousands of dollars in lost earnings over decades.

One of the main expenses is the expense ratio of investment options. Actively managed mutual funds tend to have higher fees compared to index funds or exchange-traded funds (ETFs). A fund with a 1% annual expense ratio may not sound excessive, but compared to a low-cost index fund charging 0.05%, the difference becomes clear. On a $100,000 balance, that extra 0.95% equates to $950 in fees per year—money that could otherwise be compounding.

Administrative fees, which cover plan management and recordkeeping, can also eat into returns. Some employers absorb these costs, but in many cases, they are passed on to employees. Reviewing your plan’s fee disclosure document can help you understand what you’re paying. If fees appear excessive, discussing alternatives with your employer—such as lower-cost fund options or switching providers—could be worthwhile.

Minimal or Irregular Contributions

How much you contribute directly impacts how much wealth you accumulate. Even if investments perform well, inconsistent or insufficient contributions limit growth. Regularly adding to your account allows you to take full advantage of compound interest, where earnings generate their own returns over time.

Setting up automatic contributions ensures consistency. Many employers allow you to allocate a percentage of your paycheck to your 401(k), so you contribute regularly without needing to take action. Increasing your contribution rate when you receive a raise can further accelerate growth without affecting your current budget. Some plans even offer an auto-escalation feature, which automatically increases your contribution percentage annually.

Traditional 401(k) contributions reduce taxable income for the year, potentially lowering your tax bill. Roth 401(k) contributions, while made with after-tax dollars, grow tax-free, meaning withdrawals in retirement won’t be taxed. Maximizing these benefits by contributing steadily can lead to significant savings over time.

Early Withdrawals or Loans

Tapping into a 401(k) before retirement reduces long-term growth, not just because of the immediate reduction in balance but due to lost compounding. Early withdrawals before age 59½ typically trigger a 10% penalty, on top of ordinary income tax. A $10,000 early withdrawal could result in $1,000 lost to penalties alone, and after federal and state taxes, the net amount may be significantly lower than expected.

Loans from a 401(k) may seem like a better option since they avoid penalties and allow repayment with interest. However, borrowed funds are removed from investments, missing potential market gains. If the market experiences strong growth while the loan is outstanding, the lost gains could outweigh the benefit of repaying the loan with interest. Additionally, most plans require repayment within five years, and if employment is terminated before the loan is repaid, the outstanding balance may be treated as an early withdrawal, triggering taxes and penalties.

Employer Match Gaps

Many employers offer matching contributions, effectively providing free money toward retirement savings. Failing to take full advantage of this benefit can slow account growth. Employers typically match a percentage of an employee’s salary, often up to a certain limit. For example, a common structure is a 100% match on the first 3% of salary contributed, then 50% on the next 2%. If an employee earning $60,000 contributes only 2%, they would receive just $1,200 in matching funds instead of the full $1,800 available.

Some plans have a vesting schedule, meaning employer contributions do not fully belong to the employee until a certain period of service is completed. If an employee leaves before becoming fully vested, they may forfeit a portion of the match. Reviewing the plan’s vesting rules can help in making informed career decisions. Additionally, some employers require employees to actively enroll in the match program rather than automatically applying contributions, so checking plan details ensures no available funds are left on the table.

Market Declines

Stock market downturns can cause temporary setbacks in a 401(k), but long-term growth depends on maintaining a disciplined approach. Market fluctuations are inevitable, and reacting emotionally by shifting to conservative investments during downturns can lock in losses and miss potential recoveries. Historically, the stock market has trended upward over extended periods.

Dollar-cost averaging—where contributions are made consistently regardless of market conditions—helps mitigate the impact of volatility. When markets decline, the same contribution buys more shares, which can enhance returns when prices recover. Reviewing investment choices to ensure they align with long-term goals rather than short-term market movements can prevent unnecessary disruptions. If nearing retirement, adjusting allocations to reduce exposure to high-risk assets can help protect savings from severe downturns while still allowing for continued growth.