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One of the biggest and most legitimate complaints of 401(k) retirement plans is the lack of investment options available to you. It’s not uncommon for plans to offer only 19 funds* (from my viewpoint many of which do not provide true diversification) so how do you know how to pick the right funds for you? Many 401(k) participants start by looking at past returns as an indicator of future success but this approach can be fraught with problems because often times high-flying funds tend to fall back to earth. The old saying is ”it worked, right up until it didn’t.”

Your 401(k) money is sacred and represents decades of work and sacrifice, do you think there could be a better way to invest and diversify your life savings without the limits imposed by your employer? What’s a smart 401(k) saver to do? Here are quite possibly the best strategies that your 401(k) fund manager would rather you not know about:

Could You Be Missing Out on Some Little-Known 401(k) Strategies? (Photo credit: Wikipedia)

1. “Open The Window” – Look beyond the plain vanilla options in your 401(k) and investigate whether your plan offers a brokerage window. When I’ve shared this idea with new clients they rarely even know this is an option in their 401(k). A brokerage window, once opened, allows access to almost the entire fund universe, and in some cases, stocks and tactical money managers. By using a brokerage window it allows your 401(k) to be customized to your liking and goals (it’s your money after all), but I’ve found that most fund company(s) would rather you keep your money with them hence the reason many 401(k) savers don’t even realize its an available option. The best place to start to determine if a brokerage window exists in your plan is to check with your HR department. If you find that you don’t have one available then combine efforts with your fellow co-workers and ask your employer to add a brokerage window to your plan.

2. “The Escape Hatch” – If you think having access to the mutual fund universe is exciting what about the entire investing universe? Within about half of the 401(k) plans in the US there exists a special “escape hatch” called an in-service rollover. This feature allows you to roll over the majority of your 401(k) into your IRA without the usual headaches of taxes and penalties. You can even continue to contribute to your 401(k) while you’re employed. By rolling over your 401(k) to your IRA you can effectively take complete control of how you’re invested instead of being handcuffed to a handful of lousy funds in your 401(k). Further, this strategy allows you to devise, with the help of a tax advisor, a Roth conversion strategy so you can enter retirement with a chunk of tax-free savings. Again, you should check with your HR department to see if this benefit is available to you or request the SPD (Summary Plan Description) which details all the features and benefits of your 401(k). If the in-service rollover option is not available ask for it to be added. On several occasions we’ve successfully added an in-service rollover provision to a clients’ 401(k) plan to give them more control of their destiny.

If you don’t have or can’t get either of the above strategies within your 401(k) plan, consider contributing to a tax-free Roth IRA outside your plan (income thresholds apply) and invest in strategies different from your 401(k) to broaden your diversification.

Disclosure: Rob Russell offers advisory services through Centum Capital Advisors LLC an independent RIA