origami dollar bill indicates increasing 401(k) savings contributions

You'll be able to sock away more money in your 401(k) next year, so now's a good time to make sure your retirement goals are on the right track.  

The Internal Revenue Service announced this week that the maximum amount you can contribute to a 401(k) rises to $19,000 in 2019, up from $18,500 this year. Those 50 and older can stash away another $6,000, which is unchanged from this year.

These days, more and more 401(k) investors are keeping their accounts on cruise control—and employers are encouraging that trend. Most companies automatically enroll you, choose your contribution rate, and nudge you into the preferred investing option.

According to a recent survey by Callan, an investment consulting firm, 71 percent of 401(k) accounts use auto-enrollment, up from 65.7 percent in 2015. Workers are signed up for a 401(k) account, unless they opt out.

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Of the plans that auto-enroll, most also use auto-escalation—increasing worker contributions by a percentage point or more each year. Investments are also likely to be on autopilot because workers are typically defaulted into a target-date fund, an all-in-one portfolio that provides instant diversification.

But this convenience carries a major risk: Leaving your 401(k) on autopilot is likely to jeopardize your retirement goals.

“Most people will need to go beyond the default settings in a plan to reach their retirement goals,” says Judith Ward, senior financial planner at investment firm T. Rowe Price.

That’s especially true if you’re a younger worker. As a recent study by the Center for Retirement Research at Boston College found, people between the ages of 25 and 35 have higher student loan debt and other financial challenges, which leave them far less prepared for retirement than earlier generations were at their age.

Still, the good news is that it's easy to customize your plan—all it takes is a call or a few clicks on your 401(k)'s website. Here are five key moves to make.

1. Set Your Own Savings Rate

Being auto-enrolled is a good thing. But not all employers use these programs, or they may restrict it to new hires. So make sure you are actually signed up for your plan, because automating your savings is the best way to make sure it really happens, says Tom Fredrickson, a certified financial planner in Brooklyn, N.Y.

If you're auto-enrolled, don’t just go along with the contribution rate set by your plan, which is often as low as 3 percent of pay. Adding auto-escalation, if it’s offered, can help. But plans stop hiking your savings rate at just 4.6 percent of pay on average, according to Callan, a rate that is unlikely to help you build sufficient savings.

Most workers should aim to save 15 percent of pay each year, which can include your employer matching contribution, Ward says. If you can’t save that much right now, try to contribute enough to get a full match and gradually boost your savings rate each year.

2. Stash Some Money in a Roth 401(k)

Some 71 percent of plans now offer a Roth 401(k), along with a regular pretax account. With a Roth, you don’t get an upfront tax break, but your money grows tax-free. Unlike a Roth IRA, there is no income limit to a Roth 401(k). And you can contribute to both pretax and Roth accounts. Unfortunately, few people opt for a Roth 401(k), when it’s offered.

That’s probably a mistake. A Roth 401(k) is an especially good deal for younger people, who are most likely to be in a lower tax bracket now than in the future. “The recent tax bill, which has temporarily lowered rates, makes Roth 401(k)s even more attractive,” says Jamie Hopkins, associate professor of taxation at the American College of Financial Services.

A Roth 401(k) also offers advantages for middle-aged and older savers who typically have most of their savings in pretax accounts. When that money is withdrawn at retirement, it will be taxed, which may trigger higher Medicare premiums and Social Security taxes. That’s when having tax-free savings to tap can be particularly valuable, Hopkins says.

3. Move On From a Target-Date Fund

According to Callan, nearly 100 percent of 401(k) plans use target-date funds as the default investment, up from 92.7 percent in 2016. These all-in-one portfolios provide instant diversification and an asset mix that shifts to become more conservative as you near retirement.  

Target-date funds can be a great starting portfolio, but as your finances grow complex, and especially as you near retirement, a single fund may no longer be the best choice. “You may have other financial goals, such as college tuition and a spouse’s finances to coordinate,” Fredrickson says.

If you’ve reached that stage, consider choosing your own 401(k) portfolio—your plan may offer online tools that can help you do this. Or consider consulting a financial adviser about developing an investing strategy that fits your household’s needs. 

4. Pay Attention to Costs

Some 40 percent of 401(k) plan sponsors reduced fees in 2017, compared with 31.6 percent in the previous year, Callan's data show. And more than half of employers say they’re somewhat or very likely to switch to lower-fee investments.

All of which is great, because the less you pay in fees, the more investment returns you can keep. But that may not happen if you're opting for high-cost investment options. So take a close look at the expenses charged by your funds—they will be detailed on your 401(k) statement or the plan’s website.

If you’re paying, say, 1 percent for a fund, look for a cheaper alternative on the plan menu. The typical 401(k) fund charges 0.5 percent, and index options may cost just 0.05 percent. 

5. Check the Retirement Withdrawal Options

Typically, 401(k) investors roll out of their plans into IRAs when they retire or leave the company. But employers are starting to encourage retirees to stay put, in part because larger plans can better control costs. Some 47.8 percent of employers have a policy for retaining retiree assets, up from 28.3 percent in 2015, according to Callan.

But so far, few plans offer help for retirees seeking to develop a retirement income strategy. Only 24 percent of plans offer a withdrawal calculator, the Callan survey found, and only 11.6 percent offer an annuity.

Your plan may also have few options for tapping your retirement portfolio. A 2017 survey by benefits consultants Alight Solutions found that 33 percent of plans provide a lump sum withdrawal option only, while 66 percent also allow installment payments, and 69 percent permit partial distributions.

So before you reach your retirement date, find out the rules for retirement withdrawals at your 401(k).

"You may find it convenient to keep your money in the plan, especially if your costs are low," says Ward. "But if you don't have the flexibility you need, that may be reason to roll over to an IRA."