Morningstar has a terrific article (available to free members) titled Three Tips to Make Your 401(k) Work for You and I love it! Here’s a brief sample of why:

It’s surprising there aren’t many calls in the press to ditch the automobile. After all, think of all the dumb things people do with them. They drive much too quickly and sometimes after drinking lots of alcohol. They even drive while sending text messages, putting on makeup, and reading the newspaper. The consequences can be dire: More than 40,000 Americans die in auto-related deaths each year, with nearly 3 million suffering injuries of some kind.

Few things in the financial media annoy me more than the recent calls to 86 the 401(k) plan. And the above paragraph illustrates the absurdity of the move to end 401(k) plans quite nicely.

The article goes into greater detail about the push to eliminate the plan, but it also offers some real actions that investors can take to help get their 401(k) balances back on track, or to keep them on track so that they will function as intended – as a means to save for retirement, not get rich in the stock market (as too many seem to think).

Tip #1. Save More.

Yeah, I know, this sounds trite but it’s important not to simply gloss over it. My 401(k) balance dropped by about 30-35% from its 2008 high by the time the market bottomed in March of 2009 – and this was also at a time when my company canceled 401(k) matches! Things looked not so good, to say the least. But I didn’t get discouraged and start blaming the system. Partly because I have over 20 years left until I need that money, and partly because I know the stock market ebbs and flows. True, the market doesn’t usually drop by as much as it did by early 2009, but that also meant that there was near unprecedented opportunity for big returns in the coming months.

So, I looked at what I could do to change my situation and decided to increase my contributions. I knew that this would maximize my ability to buy more stock at those low levels, and also help offset my employers decision to break their promised benefit to me (i.e. contribution match).

I saved more. And the result was that my balance was over its pre-crash value in September, 2009.

Tip #2. Invest Wisely.

Most 401(k) plans are quite limited in the options open to investors, but that doesn’t keep them from screwing it up! For example, some employees “play it safe” and put all of their money in the money market equivalent. That’s stupid, unless you’re looking at retiring in the next 2 year, but even then you shouldn’t have all of your money in cash equivalents because you’re not going to suddenly withdraw all of your saving upon retirement. You need to keep some of it in stocks for long term growth so you don’t run pout of money in retirement.

So, basically, examine the options open to you in your plan, and diversify properly according your time away from retirement and other factors such as other assets available upon retirement – ex: home equity, pension plan, etc..

Tip #3. Be Flexible.

The best laid plans can often fall short due to factors beyond your control, so while it’s important to have a plan and stick to it, it’s also important to remain flexible and be ready to adapt to new realities as the economy (both U.S. and global) enter uncharted territory. This may mean working longer than you originally thought, or working part time jobs in retirement. Regardless, don’t get caught up in the way you think things ought to be and lose sight of the way things are.

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This is a friendly reminder for anyone with retirement savings who is concerned about paying higher taxes in retirement: new tax rules remove earnings limits on Roth IRAs.

Prior to the start of 2010, you could not open a Roth IRA if:

• Your individual adjusted gross income was $120,000 or more
• You and your spouse’s adjusted gross income was $176,000 or more
• You are a married taxpayer who filed separate returns from your spouse

But all of that changed on January 1, 2010. Those limitations have been permanently removed.

This opens the doors to millions of IRA and 401(k) account holders to convert those accounts to a Roth.

Reasons to convert.

Taxes.

Unlike IRA and 401(k) contributions (which are pre-tax), Roth IRA contributions are after tax. But withdrawals from Roth IRAs are tax-free, where IRA and 401(k) withdrawals are taxed at your income tax rate.

Required distributions.

There are none!

You can keep your savings in a Roth IRA as long as you want – and even leave them to your heirs upon your death.

Benefits for heirs.

If you leave your Roth IRA to your children, they don’t pay taxes on that money either!

You may be on the fence about whether to fund a Roth or traditional IRA, but here are two things to consider.

• First, if you’ve been smart with your money, and invested well you will likely be withdrawing more money than you think you will in retirement. This is especially true if your savings are in an IRA or 401(k) or similar plan that requires mandatory distributions after a certain age.

• Secondly, taxes will most certainly be higher in the future than they are today. Even before the current crop of politicians in D.C. quadrupled the deficit, tax cuts were set to expire and rates to return to higher levels. The recent spate of uncontrolled spending in Washington only sets the stage for even higher taxes down the road.

Source

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What will it look like if it does?

If you’re like many workers still lucky enough to have a job during this recession, you’ve probably seen your employer cut or eliminate the contribution match on your 401k plan. Mine did.

My company match on 401k contributions was the first thing cut, just after my bonus and any hope of a raise. That didn’t stop me from contributing though. In fact, I increased my contribution rate to offset the loss of company match, and I am convinced that it is a large part of why my 401k balance recovered so quickly from the crash of 2008.

Regardless of how you may have handled the loss of your company match, it looks like the match may be making a comeback in 2010….

According to this SmartMoney article:

companies are increasingly reinstating this beloved perk. In the next six months, 35% of firms that snipped away at their matching programs are planning to bulk them up again, according to a recent Watson Wyatt survey. That’s up from 24% two months ago.

That’s the good news.

The not so good news is that it likely won’t look like it did before the economic melt down. 13% of employers surveyed said they are planning to reinstate the match at a lower level than previous. Others are changing the criteria for matches, by making them based on company performance. Still others are changing different rules.

17% of the companies bringing back the 401k match say they will be basing it on corporate profits. This will make retirement saving variable and harder to anticipate, especially if you work for a large corporation and have little impact on the company profits.

Other companies are switching to a once per year, lump sum contribution. This change would essentially eliminate the dollar cost averaging aspect of the company match, and if most companies elect to contribute at the same time of year, say the first or second pay period of the new year, then you may even be buying high when your contribution is put to work at a time when millions of other dollars are also streaming into the market.

Some employers also said they are considering a vesting period for the lump sum contribution. This means you could earn your 401k match for two years straight, but if you find another job before the 3rd year (assuming a 3 year vesting period)you could be out your entire contribution altogether.

If enough employers make these kinds of changes, it may be the eventual death of the 401k, since without the company match it pales in comparison to an IRA.

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Have you ever wished there was a rating system for 401(k) plans?

I’ve had a reason to in the past. I was looking at two job offers recently and one of the things that set the two apart was the benefit package. Obviously, a big part of any benefit package is the retirement plan offered by the employer. I could see that both plans offered the same employer match level on contributions, but I had no idea what types of investments were offered by the plans, or what the fees were like. That’s where BrightScope comes in.

BrightScope is an independent 401(k) rating and analytics firm that quantitatively rates 401k plans from all 50 states in the U.S. and gives plan sponsors, advisors, and participants tools to make their plans better.

They rely on public documents and grade 401k plans based on administrative costs, company generosity, investment options, participation rate, salary deferrals and account balances.

It provides a very nice visual indication of how your company 401k rates, on a scale of 1 (horrible) to 100 (excellent).

BrightScope does not accept compensation in the form of revenue sharing from mutual fund companies or plan providers, so they don’t have a horse in the race and they are more likely to provide independent results.

They hope to have over 30,000 plans rated by the end of this year, but if your plan is not yet rated, your plan administrator can get your retirement plan rated for free – no matter how small your company is.

So far so good.

But there are some things I’m not so crazy about.

For example, the ratings consider things like employee participation rate. I’m not sure why this is important, after all it’s not a determinant of how your 401k will perform. I suppose the thinking is that more people participate in better plans than poorer plans. That may be true, but it may also be that the people participating don’t have much choice, or the financial knowledge to open an IRA on their own.

Still, that’s a relatively minor problem with the idea. The site is very well done and it’s free, so why not take a look and see how your company 401(k) plan rates!

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401(k) plans can be a great way to save for retirement and let your savings grow tax-free. But the plans are chosen by employers and managed by 3rd parties and don’t always have the best options. IRAs give you the entire universe of investments to choose from, but most employers offer a free match on a percentage of contributions to the 401(k) plans by the employee. So what’s an employee to do when the 401(k) plan has lousy investment options?

Here are 5 options, though there may be more.

1. Be an index hugger.

If your 401(k) plan offers index funds, then you can still get broad-based exposure and diversification at a low cost. You won’t be beating the market, but you won’t under perform the market either.

2. Take the best and move on.

If your 401(k) plan has one or two excellent funds and a dozen other mediocre funds, take the one or two and skip the others. This may seem like you’re not properly diversifying, but you should consider your entire collection of assets when diversifying, not just a single account.

For example, say your 401(k) plan has one excellent blue chip stock fund, and an equally excellent small cap stock fund, but the bond funds are lousy. You should invest in the stock funds offered by your 401(k) and invest the overall bond allocation in some other account, like an IRA account or maybe your spouse’s 401(k). Each individual account will be non-diversified, but when taken together your total assets will be diversified.

3. Look into the “window”.

More and more large employers are offering 401(k) plans with a “brokerage window” or “self-directed accounts.” These options allow the employee access to hundreds or thousands of other mutual funds, ETF’s and even individual stocks that aren’t part of the standard 401(k) plans options.

Be sure to investigate the details and learn about any additional fees or transaction costs that may be associated with the use of the “window”. There may be additional work on your end as well, since this option is unlikely to be available for automatic contributions like the standard 401(k) options. You may need to fill out additional paperwork or make other such declarations.

4. Talk to HR.

If you think your 401(k) plan stinks and you can get other coworkers to join you, you can petition your HR department to change the plan, or go with a new plan provider altogether. The more employees unhappy with the status quo, the more likely you can get your employer to change things.

5. Check out other options.

If all else fails, you can always go it alone with an IRA account. But if you get a company match on your contributions, then pick the best fund that’s offered and contribute at least enough to get the full company match and put the rest in an IRA. There’s no point in passing up free money, no matter how lousy the fund options are.

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I braved my last 401(k) statement yesterday and lo and behold, what to my wondering eyes should appear but a fully reconstituted 401(k) balance!

It got pretty ugly around November of last year, and I quite frankly stopped looking.

But that doesn’t mean I ignored it completely. I ramped up my contributions around January by another 3% of my salary, so I could make the most of the downturn.

That simple strategy – stay put, and invest more – brought the value of my retirement savings past the pre-crash level in just 10 months.

As The Dividend Growth Investor outlines, since 1956 it has taken on average 2.8 years for the market to recover from a bear market loss.

To be fair, some of my recovery is due to contributions to the plan, but those contribution also magnified the gain from the stock market and that’s the point. Increasing your investment in broad-based funds or ETF’s when the market is down amplify the eventual recovery. Think of it as extra fuel that ignites when the market turns around and increases the velocity of the recovery.

Financial rocket science, it’s a beautiful thing.

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Here’s a handy little tool: BrightScope.com.

It’s a web site that lets people view information about their employer’s401(k) offerings and allows them to add information to the site in the hopes of building a better data set.

The database tracks over 2,000 statistics on401(k) plans including, net assets, fees, the number of participants, the average account balance, top investment holdings and service providers.

Some companies offering the best401(k) plans include:

• Saudi Arabian Oil, Lockheed Martin (LMT) 
• Southwest Airlines (LUV) 
• Piper Jaffray (PJC) 
• FedEx (FDX) 
• Amgen (AMGN) 
• Chevron (CVX) 
• Exxon Mobil (XOM) 
• AstraZeneca (AZN)
• IBM (IBM) 
• Microsoft (MSFT).

And the worst plans are offered by:

• Darden Restaurants (DRI)
• Big Lots (BIG)
• RadioShack (RSH)
• Zale Corp.(ZLC) 
• Bob Evans Farms (BOBE) 
• Best Buy (BBY) 
• Whole Foods Market (WFMI) 
• La-Z-Boy (LZB) 
• Wal-Mart (WMT) 
• Home Depot (HD) 
• Tyson Foods (TSN)

To be fair, many of the retail chains perform poorly in the BrightScope.com ratings because they tend to have employees with short term employment and lower enrollment rates, which bring the overall average balance and participant figures down

Head on over to the site and see how your plan rates.

• 2010: The year of the ROTH. This is a friendly reminder for anyone with retirement savings who is concerned about paying higher taxes in retirement: new tax rules remove earnings limits on Roth IRAs. Prior to the start of 2010, you could not open a Roth IRA if: Your individual adjusted gross income was $120,000 or......
• How to rate a stock. I don't care how many stocks you have in your portfolio, you need to have a plan. You need to take the emotional reaction out of the decision making process of buying and selling stocks. One of the best ways to do this is to rank, or rate each stock......
• Free Trades From ShareBuilder For All Of 2010 ! ING is offering commission-free trades through its ShareBuilder service for the entire year, when you open an IRA with this promo code. Here are the details: All IRA plans are no-fee plans; no fees for a low balance, no fee for inactive accounts, no annual fee for being a member.......
• Mutual Fund Monday: Morningstar Announces their Choice for Fund Managers of the Decade. These managers were chosen by Morningstar as the best of the decade because the "deftly steered investors through good times and bad". That's saying something. Investing in the '80's and 90's was pretty clear cut, but the 1st decade of the 21st century was anything but easy. As with the......
• Rate Your 401(k) Plan With BrightScope. Have you ever wished there was a rating system for 401(k) plans? I've had a reason to in the past. I was looking at two job offers recently and one of the things that set the two apart was the benefit package. Obviously, a big part of any benefit package......

• Should You Invest In Mortgage-Backed Securities? - WSJ.com ZYAKAIRA(AMIT MITTAL) NOTES: YES YOU SHOULD. The Distressed prices can recover quickly once there is liquidity in the market, as it has already done for those that were TARPed with the real cash. Also the debt market is in the best place for a rebound right now and it's easy......
• Personal Retirement Plan Investment Options Good financial management consists of two different distinct facets, the first of which is learning how to make the best use out of your limited earned income in order to best meet your current expenses, and the second of which has to do with learning how to implement strategies that......
• The Stock Market Is Crashing! The market is crashing! The sky is falling! Cats are living with dogs! It's the end of the world as we know it!OK, maybe it's not that bad. Maybe it is if you see article titles such as Fed Cuts Rates To Stop Bloodbath. A little hyperbole, no? From what......
• Palm Pixi at $25 at Amazon Ever since the Palm Pixi was launched last Sunday, the price war has begun amongst the major online shopping players.  Walmart lead the pack briefly offering the Pixi at a whopping $29.99, but has since raised that back up to $49.99. LetsTalk.com also join the Palm Pixi pricing war is......
• LendingStats Site Update LendingStats has just announced an update...  And I think it has 2 cool features and a very nice upgrade to the LendingStats ROI calculation. The ROI upgrade:  Updated the collection rates used to calculate estimated ROI corresponding to how Prosper split out the Penncro Collection rates by credit grade. This caused......