How's Your 401(k) Treating You? 3 Signs It's Time for a Breakup.

Access to a 401(k) can be a great thing. You’ll have the opportunity to save up to $23,000 in 2024 ($30,000 if you’re 50 or older), and your employer might chip in some cash, too.

But some people aren’t thrilled by what their 401(k) has to offer — and that’s OK. If any of the following things apply to you, you might want to save for retirement in a different account.

1. Your account charges high fees

All 401(k)s have fees, but the amount you’ll pay depends on the number of employees participating in the plan, your plan administrator, and the investment options available. You can’t do a lot about the plan’s administrative fees, but you might be able to take steps to reduce your investment fees.

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Most 401(k)s give you a choice among a variety of investment funds. These funds have expense ratios — annual fees calculated as a percentage of your assets that are paid to the fund manager. Ideally, you don’t want these to exceed 1%. That means you give up $1 per year for every $100 you have invested in the fund, or $1,000 per year for every $100,000 you have invested.

Switching to cheaper investments like index funds could help you hold onto more of your 401(k) earnings, but this isn’t always possible. If your 401(k) doesn’t offer low-cost investment options, you may prefer to save in an IRA or a health savings account (HSA). You could also use a self-employed retirement account if you qualify for one.

2. You don’t like the investment choices

High fees aren’t the only reason you might dislike your 401(k)’s investment options. Many companies give employees a choice of target-date funds, which are designed to adjust their asset allocation over time, growing more conservative as they reach the year listed in the fund’s name (presumably around the time you expect to retire). Some of these funds reach their most conservative asset allocation in the target year, while others continue to grow more conservative over time.

These are hands-off investment options, and some people prefer that. It can feel less intimidating for new investors than picking individual stocks or funds on their own.

But target-date funds aren’t the most flexible. They may not fit your investment strategy, and that could hurt the long-term growth of your savings.

An individual retirement account (IRA) is a better choice if you’d rather take more control of a portfolio. These accounts allow you to invest in just about anything you want, and you can dial in your investment strategy exactly as you’d like.

3. You don’t qualify for a match

The lack of an employer match on its own doesn’t mean you shouldn’t keep your money in a 401(k). But if you’re struggling with any of the two above factors, the lack of a company match could be the final sign you need to explore other retirement accounts.

On the flip side, if your plan does offer a match, but it charges high fees or the investment options feel too limited, you should contribute just enough to the 401(k) to claim the match. Then, move on to other places to save your money.

It’s best not to leave a 401(k) match on the table if you can afford to claim it, but once that’s done, go where you think you can grow your money most effectively.

Most other retirement accounts don’t have contribution limits as high as what 401(k)s offer, so you may have to come back to it if you max out your other options. That’s OK. Just make sure you explore those options and put your money where it will do you the most good.

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