12 Ways to Make the Most of Your 401(k)

Some 401(k) participants need serious help planning for a comfortable retirement.

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By now, you'd think that everyone with a job has at least one 401(k) account. But unfortunately, not all employers offer retirement accounts. And not everyone with access to a 401(k) participates. Even among retirement investors, some 401(k) participants need serious help planning for a comfortable retirement. Here are 12 ways to make the most of your 401(k).

1. Sign up. One of my coworkers once told me that he actually never knew how to get started. Find out who the plan administrator is and get the paperwork.

2. Choose investments. It can be overwhelming to pick investments on your own. Some people just set and forget, but choosing funds is still important. It won't do you any good to put all your contributions in a money market fund earning 0.2 percent annually. Take a look at target date funds as a convenient way to get started.

[See America's Best Affordable Places to Retire.]

3. Maximize compound interest. The power of compound interest is incredible and a valuable incentive to save.

4. Get your employer match. Make sure you save enough to get the entire match offered. It's free money.

5. Ramp up contributions. Most people focus on how important investment returns are, but contributions are still key to a comfortable retirement. A 100 percent return on a dollar is only another dollar. Check out these easy ways to save money every month.

6. Diversify. Not only do you need to have eggs in many different baskets, but you should customize your investment mix to cater to your own specific situation too.

7. Know your vesting schedule. I keep finding that no one thinks about their vesting schedule when they make career decisions. Find out whether your employer match is fully vested immediately or is tiered. Is it worth changing jobs when you can get thousands more by staying put for a couple more months?

[See The Six Biggest 401(k) Mistakes.]

8. Seek tax benefits. Everyone should know about the different tax treatments of their investments. Stick investments that are taxed at ordinary income, such as a commodity fund, in retirement accounts to defer taxes until retirement. Leave investments taxed at the long-term capital gains rate, such as an index fund, in a taxable account. Moving funds around to save on taxes can mean a huge difference through the years.

9. Examine expense ratios. Don't invest in funds with ultra high expense ratios. Eventually, every fund company will get the message and lower their commissions accordingly.

10. Take it with you. When you leave a job you can move your 401(k) into an IRA account, where you will most likely have better choices than what a typical 401(k) offers.

[See 5 Ways to Simplify Retirement Accounts.]

11. Avoid penalties. Don’t withdraw retirement money when you change jobs. The 10 percent immediate penalty plus taxes is almost never worth it.

12. Steer clear of 401(k) loans. If you take out a loan from your 401(k) and change jobs or get laid off, the money needs to be paid back pronto. Otherwise, the same penalty and taxes apply. Yuck.

David Ning runs MoneyNing, a personal finance site aimed at helping others change their habits for a better financial future. He suggests that everyone to sign up for an online savings account to get more out of our hard earned money.