Saving for retirement in a 401(k) is kind of like hiring a contractor to build your house. You define the scope of the project, provide the financing, and ultimately get to enjoy the end result, but you're not in complete control. The contractor sets limits on what they will or won't do that affect your final product and the project timeline. Your employer does essentially the same with your 401(k), setting constraints that affect your earning potential and your fees.

Sometimes, as is the case with the three situations below, the rules your employer sets don't always work in your favor. If your company is seriously hampering your 401(k)'s growth, read on to find out how to get it back on track.

Stressed female employee with hand on forehead and bosses in the background

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1. It can change its investment options

Most 401(k)s provide a curated selection of investment options employees can choose from, as opposed to the virtually unlimited investment options of an IRA. There are definitely advantages to having fewer options to choose from, like less analysis paralysis. But if none of the available options match your risk tolerance or provide the diversification and asset allocation you need, you're stuck.

Holding investments that are too risky for you could be taking a dangerous gamble with your money, while investing too conservatively could force you to work longer than you'd planned before you can retire. 

Some investments are also bad choices for you because they're expensive. Most employers give 401(k) participants a choice of several mutual funds, which are collections of stocks and bonds sold as a bundle. Some passively managed mutual funds, known as index funds, are cheap to operate and so charge few fees to shareholders. But actively managed funds involve a lot more work and expense, and they often don't perform as well over the long haul. Investing in one of these could slow the growth of your savings.

The plan administrator also charges its own fees. If your employer suddenly decides to switch its 401(k) plan administrator, you could find yourself paying more than you're used to annually, and there isn't much you can do about it.

You can try to keep costs down by asking your employer to offer some affordable investment options better suited to your investing goals, but it doesn't have to comply. If it won't budge and your plan doesn't offer any other incentives to stay, like an employer match, consider saving in an IRA first. If you hit the $6,000 contribution limit in 2021 ($7,000 if you're 50+), you can always go back to your 401(k) to save more -- up to $19,500 in 2021, or $26,000 if you're 50 or older.

2. It can reduce or eliminate your 401(k) match

Your employer isn't obligated to give you a 401(k) match, and when times are tough, as has been the case for many companies amid this latest recession, employers sometimes have no choice but to reduce or stop matching contributions altogether. That puts the full weight of saving for retirement on your shoulders.

This problem is easy to fix if you have spare cash. You just raise your personal contributions to make up for your lost match and continue on with your existing retirement plan. But finding a few thousand dollars extra per year isn't easy for most people.

When that's not possible, you have to make bigger changes. You could consider changing your investments as discussed above. Or revisit your retirement plan and adjust your timeline. Working a little longer gives your existing investments more time to grow, plus you'll be able to stash away a few more months or years of savings.

3. It can kick you off the plan if you change jobs and don't have enough saved

If you have less than $5,000 in your 401(k), your employer can legally kick you off the plan if you leave your job, even if you'd like to stay on it. When there's less than $1,000, they can cut you a check and be done with you. But you probably shouldn't spend that money. If you do, the government considers it a distribution and adds it to your taxable income for the year. You'll also pay a 10% early withdrawal penalty if you're under 59 1/2. 

Your best move is to open an IRA with any broker you like and deposit the check there. As long as you do so within 60 days of your 401(k) closure, the government won't charge you taxes or penalties.

When your balance is between $1,000 and $5,000, your employer can't just write you a check, but it can move the money into an IRA of its choosing and close your old 401(k) account. You can either leave that money where it is and adjust your investments to your liking or move the money to a different IRA you open with a broker of your choosing. If you do the latter, you'll pay a small, one-time rollover fee. 

How well is your 401(k) working for you?

If you clicked into this article because you'd never realized your employer's actions could affect your 401(k), now's the time to dig into the details of your plan and figure out if it's actually working for you. 

Check with your company's HR department or plan administrator to learn about your plan's investment options, fees, and any available match. You could also find some of this information in your prospectus. If you run into any of the above concerns, take the suggested steps to make your 401(k) work better for you.