Contributions to the 401(k) account are made of pre-tax deferrals. Hence, one puts money into their saving account before their pay is taxed and also, the earnings from investments made from these funds of the 401(k) savings are tax deferred. The funds are taxed only upon withdrawal from the account. This enables the employees to gather a good amount of savings for their retirement. And since these savings might be the primary providing factor for the employee after retirement, it is only natural that many would look for ways to increase or maximize them. Here are a few tips to increase 401(k) savings or to maximize 401(k) savings.

• Contribute and contribute more

Some 401(k) plans like the Safe Harbor 401(k) plan make it mandatory for employers to contribute to an employee 401(k) plan, regardless of whether an employee does or not. Hence, the very first step one has to take to maximize their retirement savings is to start contributing to their retirement plan. Also, one should start contributing as early as they can and contribute as much as they can (especially once they start receiving profit sharing funds and other incentives) to their 401(k) account as the earnings from the investments will be compounded over the long term.

One may even redirect their annual bonuses or stock options in their 401(k) account to maximize earnings.

• Maximize on the employer match

Majority of the employers offer to match employee contributions to 401(k) account where the employer contributions are tax deferred as well. The employer chooses to make a contribution of a particular number of cents for every dollar of employee’s contribution, some even making a dollar for dollar match or even more. This itself can be considered as extra earnings.

• Avoid taxes and penalties

Deferrals made to the 401(k) accounts above the contribution limits are taxable; hence one should contribute as much as they can but below the specified limits. Also, untimely withdrawals below the age of 59 ½ incur 10% early withdrawal penalty and the income is taxed as ordinary earning. Steering clear of these will actually help the employee save more.

• Make the right investments

Many plans provide the employee with the option of investing into stocks, bonds, mutual funds etc. Choosing the right investment depending on the employee’s age can provide sufficient or desired returns. Younger employees may choose to invest in high risk-high growth funds as they will be investing for longer term where it is considered that the market will generally appreciate. Older employees, especially those nearing retirement may choose to invest in low risk funds to avoid losing their nest egg should unfortunate circumstances arise.

• Monitor fees and investments

Plan administrators charge the employee a fee for setting up and maintaining the 401(k) account. One should pay close attention to the amount of fees they are charged because if they are paying higher fees, it can actually be detrimental to their money’s growth. Also, since every plan administrator will be charging a maintenance fee, it is advisable to rollover the 401(k) account if one switches the job instead of leaving it behind.

One should also monitor as to where their money is invested. Generally employers offer choices for 401(k) plan providers. If one finds that another plan is performing better than theirs, they can ask their employer to roll them over to that plan provider. One will have to refer to their summary plan descriptions and their administrator to better understand the options that they have. Also monitoring their investments will give the employee a general idea as to in which direction their money is moving.

• Work more, save more

Another option to maximize savings of the 401(k) plan is to defer one’s retirement. The simple concept that applies is that since one will be getting a pay by working more, they can continue to contribute more to their 401(k) account.

Also, one should make tax deferred contributions to the account on a continuous basis without any gaps. This ensures that the money has a continuous fund and grows more on a compounded basis.

These are some of the general tips to increase one’s 401(k) savings. To maximize them, one has to plan accordingly and preferably with the help of professional advice to achieve greater gains from their 401(k) savings.