Most people don’t pore over company retirement plan documents on a regular basis. These documents are often long and boring, so you probably just quickly look over your automatic investments at open enrollment each year and leave it at that.
[See: How to Max Out Your 401(k) in 2017.]
But what you may not realize is that not all retirement plans are created equal. In fact, some are downright terrible. A poorly designed employer-sponsored retirement plan might include:
— No employer match option
— A lack of flexibility to choose your investments
— High administrative fees
If your retirement plan includes any or all of these unfortunate features, don’t just passively opt in because it’s what is offered. Instead, take these steps:
1. Figure out the cost. Find out how much those high administrative fees are actually costing you. Running the numbers can motivate you to make some serious changes. Check out the U.S. Securities and Exchange Commission’s mutual fund expense ratio calculator.
2. Take the free money. Even if your 401(k) has appallingly high fees and expense ratios, you’ll want to invest enough to get any employer match that may be available. Even high costs won’t completely eat away at this free money and the interest it will eventually earn. Put at least enough in the employer’s plan to get the full available match. After that you can put the rest of your savings into lower-cost investments outside the 401(k) plan.
[See: 9 Ways to Avoid 401(k) Fees and Penalties.]
3. Consider an IRA. The primary advantage of employer-sponsored 401(k) plans is their high contribution limit. In 2017, you can put $18,000 into a 401(k), plus $6,000 more if you’re age 50 or older. However, if you can’t yet afford to save anywhere near that amount, an individual retirement account may give you enough savings power, along with lower fees and more investing flexibility. A traditional IRA allows you to defer paying income tax on up to $5,500, or $6,500 for people age 50 and older.
4. Fund another retirement account. If you want to save more for retirement than the $5,500 allowed by a traditional IRA, consider opening another 401(k)-like account with income from your side job. If you work as a freelancer or small business owner on the side, you can use a variety of retirement accounts for people who are self-employed. These accounts often have higher contribution limits than traditional 401(k)s. And since you can choose your account provider, you can be sure to pick one with excellent investment options and low fees.
[See: 10 Tips to Boost Your IRA Balance.]
5. Ask for an alternative. If you work for a small business, you may be able to initiate a change in the retirement plan by talking to your human resources department or the person who manages the retirement plan about new retirement fund options. Remember, everyone else who works for your company is suffering from the same bad retirement plan. So if you can make your case for a better plan, your employer may make a change.
6. Do what you can with what you have. You might not be able to get your employer to change the retirement benefits, and not everyone has the option of opening a retirement account for self-employed people. In this case, save enough to get any 401(k) match that is offered, and then max out a low-cost IRA. After that you might choose to make the best of your company’s 401(k) in order to get the tax break or do additional saving outside the 401(k) plan. After all, saving something is better than saving nothing, even if fees eat into some of your account’s earnings.
More from U.S. News
How to Save for Retirement Without a 401(k)
How to Get a Good 401(k) Match
How Long Does it Take to Vest in a 401(k) Plan?
6 Steps to Take if Your Employer’s Retirement Plan is Terrible originally appeared on usnews.com
