You know you’re supposed to save for retirement, and if your employer offers a 401(k) plan, building a nest egg can be a cinch. But the fees charged by some 401(k) plans can take a toll on the returns your retirement account should be racking up, leaving you to wonder, “Where’d the money go?”

　　Saving money in an employer-sponsored plan is generally a smart move (and a good deal), but there are also ways to get more bang for your retirement buck.

　　401(k) fees and real retirement returnsNearly every investment you make—including in your employer’s 401(k)—comes with fees, which can vary considerably. One plan may charge more than another without apparent reason.

　　The good news is that 401(k) plan fees have been trending downward for years. In 2022, fees averaged from 0.85% to 1.09%, depending on the number of plan participants and overall amount of money in a given plan (known as assets under management, or AUM).

　　But even these small fees can feel like a big bite when you consider how they can eat into your real returns. For example, a 1% increase in 401(k) plan fees could reduce your ending balance by up to 28%. That’s because, over time, fees erode your real returns and slow your balance growth. And managing your long-term returns is a big part of effectively growing your wealth for retirement.

　　Should I stop contributing to my 401(k)?If fees erode your savings, it may make you think twice about putting money into your 401(k) plan. But don’t let fear of fees prevent you from saving for retirement. Even with fees, having a tax-advantaged investment in your financial portfolio is better than not.

　　High 401(k) feesLimited investment choicesPenalties for accessing their savings before age 59 1/2Even with those concerns, avoiding your 401(k) plan altogether may be unwise if your employer offers a matching contribution, even a small one. That match is effectively free money, and it can help offset any fees the plan charges.

　　And keep in mind that you can put much more money into an employer-sponsored plan than you can into an individual retirement account (IRA). The employee contribution limit for 2024 is $23,000 a year for an employer plan; those 50 and older can kick in an additional $7,500. That’s far more than the $7,000 contribution limit ($8,000 for savers 50 and older) for an IRA.

　　Strategies for maximizing your retirement savingsWhen considering how to best optimize your retirement savings, start by ensuring you’re getting the most out of your existing retirement plan:

　　Max out your 401(k) match. First, review your employer match, if you have one. Free money is free money, no matter what the 401(k) fees. For example, if your employer matches every dollar you put in up to 5% of your salary, by contributing the same 5%, you’re really saving 10% of your pay. It’s money that you wouldn’t otherwise have, and like the rest of your 401(k) savings, will grow over time.Ensure you’re investing your money. Depending on the plan, your contributions may end up by default in a low-yielding money market account rather than investing in mutual funds or other fund types. To improve on the minimal returns that many money market accounts pay and to help employees earn more, employers have increasingly switched to target-date funds as the default option for new enrollees. Target-date funds, as the name suggests, select investments that help savings grow quickly while workers are young and preserve capital as they near retirement age (the “target date”). Review your investment choices. Don’t forget to check your investments. Some 401(k) plans offer many choices of funds; each will have its own fees and expenses on top of your 401(k) plan fees. Compare expense ratios (the percentage of your investment that goes toward fees) and look for funds that have lower costs to reduce the erosion of returns over time.Put some retirement dollars elsewhereOnce you’ve done what you can in your 401(k), it’s time to consider putting some of your retirement dollars elsewhere. There may be options that offer you a better deal on fees than your 401(k) plan, allowing you to earn more.

　　Tax-advantaged account: An individual retirement account (IRA) often offers more investment choices. There are a variety of accounts with management fees of less than 0.5% a year and with investment choices that cost less than 0.1%, which may be much lower than your 401(k) fees. You can contribute up to $7,000 in IRAs for 2024 (with an over-50 catch-up contribution of $1,000). If you’re self-employed, SEP IRA limits are much higher and can be a good choice if you’ve got a side gig on top of your regular job.Taxable investment account: Maybe you’re planning to retire before age 59 1/2 and want to grow your wealth without the restrictions of a tax-advantaged retirement account. Many brokers offer commission-free trading and access to a variety of stocks, bonds, and exchange-traded funds (ETFs). You can put together a long-term retirement investment strategy that includes your 401(k) and a taxable investment account that you can access while you wait to meet the age criteria for your tax-advantaged accounts. Just be aware of capital gains taxes, which is the tax you pay on your investment earnings.One final note on putting money in a taxable account: If you withdraw funds from a retirement account before age 59 1/2, you will typically owe a 10% penalty on top of any other taxes you owe. Having at least some money in a taxable account allows you to participate in the stock and bond markets, but still be able to access your funds relatively quickly, and without the 10% penalty. Think of it as an extension of your emergency fund.

　　Example of using 401(k) plus other accounts for retirement investingSuppose you make $4,000 a month, and you decide to put $500 toward retirement each month. Your employer matches 50 cents of every dollar you set aside in your 401(k), up to 5% of your income. Here’s a potential scenario:

　　Put 5% of your income ($200) each month into the 401(k), which entitles you to a $100 monthly match from your employer.You still have $300 left of your own money to put into an IRA or a taxable investment account—or divide between the two, depending on your goals.You’re effectively investing $600 a month toward retirement, thanks to the employer match.On the other hand, if your employer doesn’t offer a match, and you have $500 to invest each month, you might want to opt out of the 401(k) and put your money elsewhere. The $500 you’ve allocated each month for retirement savings comes to $6,000 a year, which is under the $7,000 contribution limit for an IRA. Or if you shop around, you may find an investment or a variety of investments that charge lower fees than your employer 401(k) and offer you more choices to get the most from your retirement dollars.

　　The bottom lineAlthough 401(k) fees are probably eating into your real returns, there’s no way to eliminate the costs of investing. But you can reduce how much you’re paying in fees and see better results overall.

　　Compare your 401(k) fees to what you might pay elsewhere with other investments. You might get a better deal by opting out of your 401(k), or by contributing what you need to max out your employer match and then putting the rest of the money in a different account. Run the numbers and compare the possibilities. You might be surprised to find that your money works harder outside your 401(k) plan.