4 Ways to Increase Your 401K Balance (Hint: Lower Your 401K Fees)

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Employers may be shocked by the reaction from their employees when 401K plan fees are soon given their own separate line item on 401K statements.

For the first time, in clear language, employees will see how much of a chunk 401K plan providers are taking out of their hard-earned retirement savings in fees.

If plan providers can’t either lower their fee or explain what employees are getting in return for the fee, expect an employee lawsuit.

Fees aside, 401K’s have taken a beating the past year alone from market events ranging from European uncertainty and Moody’s downgrade of the United States.

Your 401K, however, doesn’t have to be at the mercy of any these events.  Like a pilot riding through turbulence, you have controls that you can use to stabilize a bouncy portfolio.

From my experience with clients who have 401K’s, here are the top four ways that a 401K investor can manage and potentially improve his or her returns:

1.  Know What’s In Your Portfolio

If you’re invested in anything besides a target date fund, know what countries and sectors you’re invested in. This goes hand-in-hand with staying on top of current events so if a country or sector takes a turn for the worse, your 401K portfolio won’t do the same.

2.  Contribute Enough to Get Full Matching From Your Employer

There aren’t many times in life when you’ll receive free money — the 401K employer match is one of those times.  Employers may match as much as 50% of what you contribute, or in some cases more.  Some employers may alternatively contribute up to a percentage of your salary.

3.  Have an Individual Retirement Account (IRA)

While having an IRA doesn’t directly boost your 401K balance, an IRA does let you save more for retirement in general.  The plus with an IRA is that you have more choices than the typical 401K plan, including stocks, bonds, and even the same mutual funds that are available in your 401K.  A common strategy is to invest aggressive in your IRA while investing more passively (for example, with a target date or index fund) in your 401K.

4.  Know Your 401K Fees

Since January 2012, your 401K plan provider is required to show the fees on your statement.  I’ve seen fees as high as 2% or more, which over time can seriously impact how much money you save.  If your fees are 2% or higher, demand a lower fee 401K plan from human resources such as the Low Fee 401K Plan offered by Price Capital.

Your 401K may be your biggest asset behind your home, but often the most neglected since it’s something you can see and feel everyday.  The right decisions today can have a big ripple effect on your savings for the next 20-30 years.  And since pensions and Social Security are becoming scarce, your ability to retire depends on the decisions that you’re making today.