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13 Easy Ways to Elevate 401k Performance Fast

Developing a retirement plan early is the best way to make sure that you have the funds you need to comfortably live life later on. However, the mistake that many often make is thinking that it's as simple as setting money aside and waiting for it to grow.

A retirement plan, like anything financial, needs to be approached strategically in order to be effective. For example, let's imagine that you have a 401k that you're working on allocating money to. How can you make your money work for you?

By having a plan in place, you can grow your 401k more effectively, helping you to reach your goals. To help you with this, we've compiled 13 easy ways to elevate 401k performance so that you can grow your retirement funds without any added stress. While not every tip applies to everyone, most will and can help you boost your savings.

1. Go With a More Aggressive Fund Strategy

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One common mistake people will make with their 401k is taking too conservative of an approach when it comes to investing. While you don't want to risk your money unnecessarily and put it into mutual funds that could end up costing you, you also don't want to invest your money solely into bonds or CDs and experience very little growth.

Instead, aim to strike a fine balance between the two. Make sure you have a fund that features safer investment vehicles like bonds to hedge against risk while also putting your money into solutions like large and small-cap stocks that have a greater chance of seeing increased profitability over time.

2. Move Away From High Fees

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Many 401k plans are riddled with fees that, over time, eat into the value of your account. Sadly, most people are unaware of these fees because they are buried in the fine print of the adoption agreement.

Years ago, you had zero choice when it came to your 401k plan. Whatever your company chose, you had to invest in it. But today, there are more providers, with many offering plans with low fees. While you still cannot choose the plan, you can push for your company to switch plans.

3. Roll Over Your 401k

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Maybe you tried to get your company to switch plans, but they won't. You might think you are stuck, but you aren't. While most plans allow you to roll over your balance after leaving the company, some allow for rollovers while you are still an employee.

If yours does, you can move the money into a traditional IRA. Here, you have much more control over the investments you put your money into, along with the fees.

4. Take Advantage of Employer Matching

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More and more jobs offer 401k matching as part of the benefits that you receive for working there. If this is something offered by your employer, make sure to take advantage of it! Your employer is essentially giving you free money.

The amount of the match varies by employer, and there usually is a maximum amount they will match. But in most cases, the match ends up being worth a few thousand dollars a year, so it can make a huge difference in the long run.

5. Look for Tax Credits

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The biggest issue that people run into when they begin working toward retirement is feeling that there's simply not enough money to go around. Suppose you're an individual with a lower income. In that case, you probably feel stressed and worried about the future while simultaneously trying to make sure that you have enough money to afford the necessities now.

With that in mind, there are strategies that you can use to save toward retirement and still be savvy about your money. For lower-income individuals, the Savers Tax Credit can help you reduce your taxes or boost your income by offsetting a portion of the first $2,000 you contribute to a retirement savings account like a 401k.

6. Remember to Make Catch-Up Contributions

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Starting to invest in a 401k doesn't always look like maxing it out every year. In fact, if you're like most people, you might only be able to afford to contribute a small amount as you improve your finances.

But once you have a solid foundation and reach the age of 50, you can start making catch-up contributions. Catch-up contributions give you the opportunity to add more money to your account that goes over the maximum for the year, so you can catch up on past years when you weren't able to contribute as much.

7. Use Mega-Backdoor Contributions

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It's important to preface this suggestion by mentioning that this strategy isn't available to everyone. However, if you have great 401k benefits at your job and an employer who will allow this, it's something that you should take advantage of.

Essentially, mega-backdoor contributions allow you to exceed the traditional 401k limits set each year. Aptly named, these mega-backdoor contributions can help you save tens of thousands of dollars more than you would normally be able to. However, because this is an advanced strategy, speaking with a tax expert is critical; otherwise, you could incur penalties.

8. Boost Your Deferral Rate

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Employee contributions can be a great way to grow your 401k; however, there's only so much you can do. After all, you have a host of things you need to pay for outside of retirement investments. If you contribute too much, you can end up making it harder for you to stretch your salary to afford the things that you need.

This is why it's best to boost your deferral rate when you receive an income bump. To make it work, every time your salary increases, you should manually increase your contribution amount by 1%. It may not seem like much, but it compounds over time.

9. Aim to Max Out Your Contributions for the Year

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It might seem like a silly addition to this list but always try to max out your account until you reach the annual contribution limit. Too many will set and forget their 401k retirement account, which is a strategy that will help you work toward retirement; just not retire and afford to do everything you dream of.

Not only will maxing out your account make it grow larger, but you will also get the tax benefit of a lower taxable income.

10. See If There Are Other 401k Types Worth Investing in

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Did you know that there is another 401k account that you can put your money into? A Roth 401k works similar to a Roth IRA. You contribute money post-tax, and it grows tax-free.

By putting money into both a traditional and Roth 401k, you give yourself more options for income when you retire. Some years, you can take money from your regular 401k and pay the taxes. In other years, you can withdraw tax-free from the Roth.

11. Roll Your Accounts Over If You Transition to a New Job

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Employees who are fired from a job or quit voluntarily may believe that their 401k accounts are gone or just travel with them. But that's not exactly true. When you leave a company, your account stays there.

When this happens, you have a few options: You can leave it there and not contribute anymore, roll it into your new company's 401k, roll it into an IRA, or cash it out.

Cashing out should not be considered since you will owe taxes and penalties. The best option is to roll it into a traditional IRA, which will give you full control over how to invest it.

12. Try Not to Touch the Money

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I wanted to go into some reasons why you don't want to touch the money you invested, even though it may be tempting to do so. As mentioned, taking the money out can result in tax consequences. But that is not all.

You will also miss out on more growth, and there will be consequences for your future self because you will save less money.

13. Remember to Have a Comprehensive Retirement Strategy

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If you want your 401k investments to be most effective, you need to make sure that you have a comprehensive retirement strategy in place. This means having various types of accounts, diversifying each one, and having goals in mind.

The more planning you put into place, the greater your odds of living the retirement you dream of.

Author: Jon Dulin

Jon Dulin is a personal finance writer for 15 years. Jon has a Masters degree in finance and a certificate in financial planning. He also writes for the AP Wire and MSN.

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