Top 3 Tips to Maximize Your 401(k) Savings

Having access to a 401(k) plan at work isn't a given. And if you don't have a 401(k), you can always save for retirement in an account you open yourself with a brokerage firm. For example, IRAs offer more flexibility for choosing your own investments.

But if you're going to use a 401(k) as your retirement plan of choice, then it's important to make the most of that account. Here are three moves that could help you grow your 401(k) balance really nicely.

1. Snag your full employer match

There are some people who have access to a 401(k) plan without an associated employer match. But Vanguard reports that at least within the context of its platform, 95% of workplace retirement plans offer some type of matching incentive.

It pays to put enough money into your 401(k) to claim your employer match in full. Not only can your employer match boost your balance as that money hits your account, but you can also invest that extra money over time.

So let's say your employer puts $3,000 into your 401(k) this year because you also put $3,000 in yourself. If your 401(k) generates an average annual 10% return, which is in line with the stock market's average return over the past 50 years, that $3,000 alone could be worth about $136,000 four decades from now.

2. Save your raise every year

Every dollar you put into your 401(k) is a dollar you can't spend on something else. And it can be difficult to give up some of the things you enjoy or want for the promise of a comfortable retirement down the line.

That's why a good strategy for maximizing your 401(k) is to bank your raise every year -- but at the start of the year, before you've gotten used to that extra money. If your pay goes up $1,500 from one year to the next and you allocate that entire $1,500 boost to your 401(k), you won't miss it. It's an easy way to increase your contribution rate without making yourself unhappy.

3. Choose index funds as your go-to investment

One negative with 401(k)s is that they typically do not let you invest your long-term savings in individual stocks. Rather, you're generally limited to a variety of funds, all of which can have benefits and drawbacks.

A big issue that may arise with some of your 401(k)'s fund choices is the high fees they charge. These are common in mutual funds as well as target date funds.

Index funds, on the other hand, are passively managed funds whose goal is to match the performance of the market benchmarks they're associated with. Because of this, their fees tend to be really low, which means they shouldn't heavily erode your returns the way mutual fund and target date fund fees might.

And if you're worried that sticking to index funds will lead to a lower return in your 401(k), fear not. Index funds have a long history of outperforming their actively managed counterparts.

The more strategic you are with your 401(k), the larger your nest egg might end up being in retirement. Follow these tips so you're able to enjoy your senior years with plenty of money at your disposal.