Though by no means perfect, a 401(k) plan is most people's best shot at accumulating enough money for retirement. Yet many aren't taking full advantage of their plan and maximizing it to the hilt.
"The 401(k) system is not working as well as it can," said Alicia Munnell, executive director at the Center for Retirement Research at Boston College and longtime critic of the 401(k). Munnell pointed to the average $110,000 retirement savings held by near-retirees.
"That's a pittance," she said. "But the 401(k) is here to stay, and we need to make it work effectively."
With that mind, here are five things to know about your 401(k) to make it work harder.
1. You need to contribute more than you think. More companies are automatically enrolling workers in their 401(k) plans unless they opt out. While that's resulted in a surge of participation — hovering close to 90 percent at some companies that use this feature — employees often get stuck at their original auto-enrolled rate, averaging 3.1 percent, according to the Urban Institute.
According to data analyzed by the Center for Retirement Research, while more people are participating, the amount they're saving is less. Automatically enrolled older workers contribute $900 a year less than those who enroll voluntarily.
"That's not going to be enough," said Cameron Penney, certified financial planner and founder of Penney Financial. "You'll need to do 10 to 15 percent."
In recent years, companies have started adding an auto-escalation feature, increasing the contribution rate a percent or two a year until workers reach 10 percent or more.
At the very least, said Tracy St. John, a financial advisor and owner of Financial Avenues, you should invest enough to get the full company match. You can contribute up to $18,000 a year, or $24,000 if you're over age 50.
2. You pay for it. Nearly half of Americans believe that they don't pay for their 401(k). "Most people don't know about the fees, because they don't see [them] coming out," said Katie Brewer, CFP and founder of Your Richest Life.
Expenses are deducted quietly from your account balance, and they can vary widely. Though plan sponsors are now required to disclose fees to participants, the information can still be confusing.
There are three main fees to which you should pay attention. The first is the investment management fee, the bulk of your total cost.
Second is the administrative fee, which goes for day-to-day operations, like record keeping. This is sometimes a set dollar amount and is divided among all the participants.
Lastly, there's the service fee for additional services, like a brokerage window or loans.
In general, large companies with negotiating muscle and savvy finance officers have lower fees, said Michael Francis, president and chief investment officer of Francis Investment Counsel, a firm that helps businesses run their 401(k) plans.
Workers at big firms can pay as little as 15 basis points for their plans. But employees at smaller firms, by contrast, end up paying much more. "If you have a plan with less than 100 people, you're likely to be paying more than 1 percent," said Francis. "So the bulk of American workers are likely to be paying more than 1 percent."
Over a 35-year span, a 1 percent difference in fees can reduce the total amount of your investment by 28 percent, according to the U.S. Labor Dept.
3. Target-date funds aren't always on target. In many plans, employees are automatically defaulted into a target-date fund, an all-in-one fund that's invested on behalf of shareholders based on their retirement target date. The funds start with an aggressive equity posture early on and become more conservative as retirement draws closer.
"Think about your average 24-year-old college graduate who will have tax-free compounding for the next 40 years.That tax-free compounding is huge."
"Most people have a hard time managing their behavior," said Josh Itzoe, partner and managing director of Greenspring Wealth Management. "They either get too aggressive or too conservative, so I would say that the vast majority of people would probably do better in a target-date fund over time."
Itzoe's firm helps companies run their 401(k) plans, and he is the author of "Fixing the 401(k): What Fiduciaries Must Know (and Do) to Help Employees Retire Successfully."
Target-date funds are hugely popular. According to Cerulli Associates, at the end of 2013, 38 percent of new contributions went into the funds. By 2019, Cerulli estimates that nearly 90 percent will, and the funds will have more than a third of total 401(k) assets in them.
But there are drawbacks. Though they're a better alternative to the money market and stable value funds that used to be plans' default options, they can be limiting.
For starters, the funds make the same assumption about risk tolerance for everyone. So if you're planning to retire in 30 years, your money is invested the same way as every other person who plans to retire in 30 years.
Second, they can hold big concentrations in stocks even for workers approaching retirement. "For somebody who is 15 years away from retirement, they are way more aggressive than ... if I were handpicking their allocation," said Brewer of Your Richest Life.
An individualized retirement plan is always best. But if you're not working with a financial advisor and have no interest in taking an active role in your investments yourself, then a target-date fund is probably your best bet.
4. You can take a loan (but you shouldn't). Most 401(k) plans allow you to take a loan. You can take 50 percent of your balance, up to $50,000. It's a readily available pool of assets and doesn't require a credit check like other loans.
You must repay the loan within five years, paying back at least quarterly but on an after-tax basis. In addition, you'll also have to pay interest, which is the prime rate plus 1 percent.
Not surprisingly, financial advisors recommend against loans. "You could be missing out on upside," said Penney of Penney Financial. If your repayment period had run from, say, 2009 to 2014, that's a lot of bull market your money missed.
Another downside: If you default on the loan or leave your company without paying back the full amount, the amount outstanding becomes taxable and subject to a 10 percent penalty.
But there are times when a 401(k) loan can be acceptable, said St. John of Financial Avenues. In fact, she's done it herself. In 2013, St. John and her husband were closing on a house and needed cash for the down payment; their old house wasn't even on the market yet. She took a loan and paid it back two months later. "I would only recommend it if you have a large balance and you can pay it back quickly," she said.
5. There's a Roth option. Roth individual retirement accounts have long been touted as a most tax-efficient way to save for retirement, especially for young workers with long investment horizons. By making after-tax contributions, you can take tax-free withdrawals at retirement. Roth 401(k)s give you the same benefits, but with a higher contribution allowance and no income limit.
Unfortunately, the plans are underutilized, according to Francis of Francis Investment Counsel, with just half of employers offering them.
"Think about your average 24-year-old college graduate who will have tax-free compounding for the next 40 years," Francis said. "That tax-free compounding is huge."
Bear in mind that even if you opt for the Roth 401(k), your company match will be made pre-tax.
— By Ilana Polyak, special to CNBC.com
Data also provided by 
