Watch the fees
Along with saving as much as you can, you want to keep more of what you save. That means keeping an eye on the fees charged by the investments in your account. These can vary, from less than 1% to about 2% or more of the amount you invest.
Admittedly, even 2% might not sound like a lot — but over time, it really adds up. For example, if you invest $100,000 in a fund that earns 7% a year but charges a 2% annual fee, after 25 years you'll have paid $100,187 in fees — and (because you’d have less money for you) reduce your overall earnings by even more. But cut the fee to 1%, and your expenses drop to $58,130 (while your potential earnings rise even higher).
Your retirement plan’s website should list the fees your available investments charge, but but if you can’t find them, check with your human resources or benefits department.
Consider a Roth 401(k)
“Traditional” 401(k) plans offer a great way to save for retirement, especially if your employer matches your savings: You contribute pretax dollars, and your account grows tax deferred until you withdraw your money in retirement. Yet other plan options also have a place in most retirement savings strategies.
For instance, does your plan offer a Roth account? If so, consider directing some of your savings there. Unlike a traditional account, you'll contribute money that’s already been taxed — but your withdrawals will be federal tax free if you hold the account at least five years and meet other criteria. Diversifying your contributions this way can help you manage taxes in retirement.
A 401(k) plan can be a cornerstone of your retirement savings plan. By making smart choices, you can better leverage the money you're working hard to earn and save.
Try not to borrow from your account
As your account balance inches up, it may be tempting to borrow against it. But try to resist the temptation unless you're facing a dire financial hardship and have no other way to cover a major expense. For starters, by removing money from your account, you may no longer be earning money on it. In effect, you're likely sabotaging your efforts to save for retirement.
Taxes are another concern. True, your loan payments (plus interest) will go into your account as long as you’re still with your employer. But you'll have to repay your loan with after-tax money — and you'll owe taxes again when you withdraw the money in retirement.
If you become unable to repay the loan, the amount you borrowed can be considered a distribution that may be subject to taxes and penalties.
Similarly, if you quit or lose your job, the plan may require you to repay the loan within a certain amount of time, such as 60 days. If you can't, the balance also may be considered a distribution — and subject to taxes and possible penalties.