Your Finance: Take advantage of new 401(k) plans

Jennifer Rogak, Licensed Clinical Social Worker, meets with

Jennifer Rogak, Licensed Clinical Social Worker, meets with Sheila Smith, 71, and her husband David Smith, 72, to help them deal with any issues concerning their long term care insurance at their apartment in Port Jefferson. (Nov. 6, 2013) (Credit: Heather Walsh)

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Don't look now, but your 401(k) retirement account is probably humming along nicely. Not only did the investments in it do extraordinarily well in 2013, but the folks who run those accounts made considerable improvements.

Employers got more generous with their contributions. Plan managers added some new and better investment choices and recommitted themselves to holding down fees.

Here are other ways to take advantage of those new improved 401(k) plans now.

Recalculate your contribution. Companies have started matching contributions again after dropping them during the financial crisis and recession. They are also making their contributions larger. At a minimum, make sure you are contributing enough to get the full match for 2014.

And if you can afford to do so and your plan is a good one, arrange to put in more than that with every paycheck. You can contribute as much as $17,500 of your pretax income to your 401(k). If you are 50 or over, you can contribute an additional $5,500. If you are over 50 and in a combined 42 percent federal-state income tax bracket, you can save yourself $9,660 in 2014 taxes alone by contributing the maximum.

Don't just rely on the autopilot. Almost 60 percent of companies are automatically enrolling their workers in their 401(k) plans and setting up their investments for them, reports consulting firm Aon Hewitt, and that's usually a good thing. But the bulk of companies doing this are only "auto-enrolling" their workers at a 3 percent of salary contribution level. Many can afford more, and should raise their contributions above that level.

Take a careful look at any target date funds your plan may have automatically steered you into. Some target date funds have higher fees than other funds, because they are essentially funds of funds. Some may be too conservative -- putting too much money into bonds, for example -- and some too risky -- making big bets on stocks -- for the tastes and situations of individual investors.

Do a cost review. Check the funds you hold and the alternatives you don't for their total fees. In general, it is good to keep fees as low as possible. To accomplish that, you can take these three steps: (1) Fill the core of your portfolio with a very low cost index fund, such as a total stock market index fund or a large stock index fund. (2) Use proprietary and institutional funds when they are offered. These may look like funds created just for your company, or they may simply say "institutional" in their name. (3) Choose low-cost alternatives whenever you have a choice of multiple funds that aim at the same asset category.

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