10 Ways to Get More Money Out of Your 401(k)

401(k)s make it easy to save for retirement -- almost too easy. Once you set up your contributions and investments, the magic happens automatically. The plan transfers your money and invests it, without you having to do a thing. You could almost forget you're saving for retirement at all.

The only trouble is, letting your 401(k) run independently could cost you. Fortunately, it only takes a little hands-on management to produce big returns. Try these 10 strategies to get more money out of your 401(k).

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Your investment strategy in your 401(k) can make or break your retirement dreams. Specifically, investing too heavily in bond funds can work against you, especially if you're young.

Thankfully, there's an easy way to know how your 401(k) investments should be split between bond funds and stock funds. It's called the Rule of 110. Subtract your age from 110 and the answer is the percentage of stock funds that's appropriate to hold in your retirement account. Using this rule at 30 years old, you'd have 80% stocks and 20% bonds. At 50, you'd have 60% stocks and 40% bonds.

The idea is to invest more aggressively when you're young and then get more conservative as you age. In other words, you make money first, and then protect it.

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Mutual funds have operating costs, and they're passed along to shareholders. You won't see charges on your statement for these costs, but you will feel the impact in the fund's performance.

Fees reduce underlying investment returns. Essentially, a fund with higher fees must perform better to deliver the same return to shareholders as a fund with lower fees. Said another way, if two funds have the same portfolio, the fund with lower expenses will produce higher returns.

As you review fund options in your 401(k), pay attention to those fees. When you have a choice, pick a fund with the lower expense ratio. That keeps more of your money invested and working for you over time.

A common investor mistake is selling off investments when the market gets rocky. If you resist that urge and instead stay invested for the long haul, you will likely have much higher returns.

It might help to remember that the long-term average annual growth of the stock market is about 7% after inflation. That 7% average includes the Great Depression and the Great Recession, plus an oil crisis, stagflation, and the bursting of the dot-com bubble. The market has recovered from all those crises and come out stronger on the other side. Sometimes that recovery takes a few years, but it does happen eventually.

Most investors cannot beat that 7% by trying to skip the bad times and investing only in the good times. The challenge is that you cannot predict market conditions. By the time you know the market's going up or down, it's too late to beat the momentum. In practice, you'll probably end up selling when share prices are down and buying when share prices are up -- and that creates losses instead of profits.

Using your full employer match can make the difference between retiring comfortably at 65 and working into your 70s.

Let's walk through the numbers. Fidelity reports that the average employer matching rate is 4.7% of the employee's salary. Assuming the match is dollar for dollar, you would contribute 4.7% from your pay and then your employer would also contribute 4.7%. The total contribution rate would be 9.4%.

The U.S. Bureau of Labor Statistics estimates that the average U.S. worker salary is $52,052. A 9.4% contribution rate sets aside about $4,800 annually. If the 401(k) is earning an average return of 7% after inflation, the balance would grow to about $660,000 after 35 years.

If you contributed only 3%, your annual contributions including the match would be about $3,100. After 35 years with the same 7% growth rate, your ending balance would be $430,000 -- or $230,000 lower than the example above.

ALSO READ: No 401(k) Match? 2 Even Better Ways to Save for Retirement

You already know you can get more out of your 401(k) by putting more into it. But you may not feel great about raising your retirement contributions, especially if your budget is tight. You're locking up those funds possibly for decades, after all.

An offsetting strategy can help you ease into higher contributions. Here's how it works. Pick one line item in your budget and find a way to lower it. Then increase your 401(k) contribution by the amount you saved.

Look to your car or home insurance first. Shop around for a lower rate, switch insurers, and then save more for retirement. Food and random subscription costs are other areas that may provide easy savings opportunities.

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Some employers allow you to set one contribution rate for your paycheck and a different contribution rate for your bonuses. If you have the option, use it to set a high contribution rate for bonus pay. As long as you're not reliant on the bonus to cover living expenses, contributing more at bonus time is a low-impact way to get more money in your retirement account.

Even if this strategy amounts to an extra $100 or $200 deposited to your 401(k) each year, it's worth it. One hundred dollars today is worth almost $800 after 30 years at an average growth rate of 7%. Repeat your bonus contribution every year, and it could easily add up to thousands.

Your 401(k) probably has several layers of fees. Some of these are outside your control. For example, you can't opt out of the plan's annual administration fee or the fees embedded in your mutual funds. The one type of fee you can avoid is the extra service fee.

Your plan may charge extra for borrowing from your 401(k), rolling your assets into an IRA, taking a hardship withdrawal, or talking with a financial advisor. Retirement account provider Human Interest reports that these fees can range from $20 to $150 or more. The dollar amounts aren't huge, but your true costs would be much higher -- due to the income you'd lose because those dollars are no longer invested.

Avoid these extra services if you can.

Vesting is a schedule that defines when you take ownership of your employer matching contributions. It's a confusing concept, because your 401(k) balance reflects 100% of your matching contributions -- even when you aren't fully vested.

The ownership of your match only becomes an issue if you quit or get fired. Once you separate from your employer, you forfeit any unvested matching contributions. That can cause a sizable reduction in your invested balance.

Vesting often takes three to five years, and the process is usually gradual. You might, for example, gain ownership of 20% of the match per year for five years.

If you're looking at other job opportunities, research your vesting schedule. Weigh the loss of unvested contributions as you evaluate job offers.

In 2021, you can get a deduction on your taxes for contributions to an employer-sponsored retirement plan if you make $33,000 or less as a single tax filer. Married couples filing jointly are eligible for the Saver's Credit if they make $66,000 or less.

Depending on your adjusted gross income, the credit is worth 10% to 50% of your eligible retirement contributions if you qualify. For example, if you fall into the 50% bracket based on your income, you could claim a tax deduction of $750 on a $1,500 contribution.

If the deduction creates a tax refund, put the cash into your emergency fund. Or open an IRA or taxable brokerage account and invest the funds for long-term growth.

Your 401(k) offers tax-free contributions and tax-deferred earnings. The trade-off for those perks is a limitation on withdrawals. Unless you qualify for an exception, any withdrawals you take before age 59 and a half will incur a 10% penalty from the IRS. The penalty is in addition to the normal income taxes you'll pay on the withdrawal.

On a $10,000 withdrawal, for example, you'll owe the IRS $1,000 plus $1,000 or more in income taxes. You also lose out on the tax-deferred earnings you would have made if you kept the money in the account. Earnings on $10,000 would be about $9,671 in 10 years, assuming 7% average annual growth.

The bottom line is that early 401(k) withdrawals deplete your wealth in a big way. If you're in a financial bind, exhaust every other option before you pull money from your retirement account.

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Your 401(k) is a powerful tool for retirement savings. You can build wealth simply by putting money into the account and investing it in a mix of stock and bond funds for 10 years or more. But you can also do more -- and make more as a result.

A smart 401(k) investment strategy is your starting point. Use the Rule of 110 as a gauge for the percentage of stock funds to hold in your account. Lean into low-fee funds and stay invested for the long haul. You're wise, too, to take full advantage of perks like employer matching contributions and the Saver's Credit. And finally, raising your own paycheck deferrals periodically is a surefire way to ramp up the wealth momentum in your 401(k).

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