4 Ways to Boost Your 401(k) Returns

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Employer-sponsored 401(k) plans are powerful retirement vehicles. Beyond empowering you to take the first (and perhaps most important) step toward retirement savings, 401(k) contributions are also made using pre-tax income, meaning they can reduce your current income tax obligation, too. (See also: If You Want Your 401(k) to Grow, Stop Doing These 6 Things)

But the benefits of 401(k) plans don't end there — consider these additional ways to power charge your plan for maximum returns.

1. Get a Full Company Match

The most attractive benefit of 401(k)s is that most corporations match some percentage of your contributions, up to 6% of your salary. Let's say you earn $50,000 per year, and your company matches 100% of your contributions, up to 6% of your salary. That's a $3,000 per year match — or in other words, it's $3,000 in free money. Of course, not all companies offer such generous matches, but consider contributing as much as your company will match in order to maximize this source of free retirement money.

2. Choose Low-Fee Funds

The fees you pay on your investments can seriously erode your earnings. The SEC notes that even a 1% annual fee paid on a $100,000 portfolio will cost you $28,000 over 20 years. Yikes! That's why keeping your fees low — by choosing passively managed index funds or ETFs, where possible — is so important. Not only do you get to keep more of your money, but you also get to enjoy the extra growth on that money, thanks to the effect of compounding. All 401(k) plan offerings are required to disclose their fees; aim to select offerings with fees below 1%.

Actively managed mutual funds often have the highest fees, so check the fine print.

3. Diversify

401(k) plans offer hassle-free strategic investing, including the ability to diversify your investments in order to help reduce risk. Often, a major investment firm like TD Ameritrade, Vanguard, or T.Rowe Price manages the plan and has worked with your employer to offer a variety of options which enable you to diversify your investments. But it's up to you to make use of them.

If you don't feel comfortable creating your own diversified set of selections, consider choosing a broad index fund or Target-Date Fund. The latter selects investments based on your expected retirement date, automatically adjusting for risk and return profiles over time. This enables you to capture many of the benefits of diversification, without actively selecting several funds.

4. Rollover 401(k) Plans When You Change Employers

Most of us change jobs (and even careers) throughout our lives, but frequent job-switching shouldn't prevent you from participating in a 401(k). And if and when you leave a job, you can rollover your plan's assets into your new company's 401(k). If you're moving to a role that doesn't offer a 401(k) (such as a small company, or self-employment), avoid paying huge early withdrawal fees by rolling over to an IRA within 60-days of cashing out.

If you're considering job offers, take into account a company's benefits package. It is one of the most important things to consider next to compensation. Seek an employer that offers a 401(k), and preferably one that offers matched contributions. Without a strong retirement plan, you're likely just extending the number of years you'll need to work, so proceed accordingly.

What are you doing to supercharge your 401(k)?

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