The article below is from a series of articles and video tutorials about financial planning …

Out of sight, out of mind. That’s pretty much how the 401k retirement plan works. You enter into an agreement and your employer deducts a certain percentage of your income (pre-tax) that gets tucked away towards your retirement. Sometimes, if your employer is particularly wonderful, they will offer to match your contributions, so your final pay-out will be twice the amount of what you put in.

What makes the 401k retirement plan different from other pension benefits is its flexibility and the amount of control you have over it. Some choices include: What percentage or flat monthly rate do you want to contribute? Also, where do you want to invest your money? Your employer will provide you with a list of choices and you can choose between stocks, mutual funds, bonds, money market investments, company stock or any combination of the aforementioned. You may also select a financial adviser to make the choice for you. As with anything in life, there are risks. If your company goes broke, you may lose a significant portion of your retirement savings, especially if heavily invested in company stocks. You may choose to actively participate in where your money gets invested because some annuities may be poor performers, while others are winners. Financial experts often recommend to diversify where your money goes so you don’t “put all your eggs into one basket.”

Check with your company to see which 401k retirement plan you’re under. Either defined benefit or defined contribution. Under a defined benefit plan, your employer controls the final pay-outs, which do not fluctuate as the market does, but instead are based upon your salary history and years employed. With a defined contribution plan, you’ll have more control over how much you contribute and where it’s invested, but less guarantee on how much you will end up with when you retire.

When you leave an employer, generally your 401k retirement plan remains active for the rest of your life. If you feel uncomfortable leaving your savings in the care of your ex-employer, or if your company charges a fee for looking after your account, you may rollover 401 k benefits into an Individual Retirement Account. Look into the rollover 401 k if you’re switching employers too. You’re allowed to draw on your 401k retirement plan after age 59 1/2 and you will then pay taxes on what you take out. Most plans have a minimum distribution requirement you must abide by, meaning that once you reach age 70 1/2, you’ll have to start to withdraw some of your money, unless of course, you’re still working. The only plan that is exempt from the minimum distribution rules is the Roth IRA. You may want to consider taking a crash course in investing and take a more active role to ensure maximum returns.

For more information on the 401k retirement plan, you can buy retirement planning software like Quickbooks, or research retirement planning services at places like Fidelity Financial. The best thing you can do is to invest wisely, diversifying where your money goes or devising a supplemental retirement plan in case your 401k or pension doesn’t turn out the way you had planned.

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