How to evaluate your 401(k)

Whether you are self-employed or work for an employer, saving money for retirement through a 401(k) is a smart idea. It’s a great idea especially if there is a company match. However, some 401(k) plans are better than others and the differences can add up to thousands of dollars in retirement savings. Here are some tips for evaluating your 401(k) plan.

Check out the funds offered in your plan
Find the ticker symbols and do an online search. If the funds are not available to the public it is likely your plan invests through an annuity. Annuities are more expensive than most mutual funds or exchange-traded funds (ETFs).

Are the funds in good share classes?
Mutual funds offer different share classes with different fee structures. B and C shares are more expensive. You may be better off with load-waived A shares or with institutional shares. The type of share should be apparent in the name of the fund.

Make sure you have the option of low-cost fund choices
ETFs are index funds which are the least expensive funds. If you want higher returns you can pick actively managed funds but higher returns are not guaranteed, making index funds a good choice for most people.

Top-performing funds are key
Retirement investing is for the long-term so make sure you have a selection of funds that have been around ten years or more and that they have ranked among the top half of funds in their categories.

Get professional advice
401(k) decisions are not easy. If you work for a company, find out if they use financial planners. If you are self-employed, sit down with a financial planner to talk over your concerns and to get guidance. Many banks and credit unions offer financial planning. You can also check with the Financial Planning Association [www.fpanet.org].

Talk to the plan’s trustee
If you follow the above tips and feel like your plan could be better, talk with your 401(k) plan’s trustee. Under federal law, the trustee has to offer participants the best possible plan at a reasonable cost.