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A '401 (k) plan' is a tax favored defined contribution retirement plan that allows you a unique option of saving for retirement and reducing your tax liability at the same time. It effectively means that for every dollar that you put aside as saving for using it after retirement, the treasury awards you some additional cents! This tax award comes to you, courtesy section 401 (k) of Internal Revenue Code, hence the name.

Different 401 (k) plans can have different features, that may impact your decision to invest in that plan. Thus before you take a decision on how much to invest, you must fully understand the features of your plan. However, more important than that are the situations of your own income and factors that govern as to how much you need to save. All the relevant factors need to be taken in to account.

RELEVANT FACTORS FOR DECIDING HOW MUCH TO INVEST IN 401(k) PLAN

Since all 401(k) plans may not be exactly alike, you must know the following features of your plan, before you can decide your strategy of investing in it.

1. EMPLOYER CONTRIBUTIONS : MATCHING OR NOT - Not all 401 (k) plans have the feature of matching contributions by employers. Some have a fix contribution, where irrespective of your contribution the employer will contribute a fixed amount. Commonly, however, the employer makes a matching contribution, subject to a certain limit, e.g.. 5 % of your annual compensation. In case of matching contributions, it makes more sense to invest as much as you can in the 401 (k) plan.

2. TRADITIONAL 401 (k) OR ROTH 401 (k) - There are subtle differences in traditional and Roth plans. In traditional plans, contribution is exempt from tax but withdrawals of contributions as well as earnings are taxed. In Roth accounts, contributions are not exempted but withdrawals as well as earnings are exempt after age of 59 1/2 years. So if you are currently in a higher tax bracket, it makes more sense to invest in a traditional plan, otherwise it would be preferable to invest in both partly, to allow greater flexibility.

3. INVESTMENT OPTIONS PROVIDED IN 401 (k) - Some but not all plans provide an option to the employee to invest the contribution in stocks, debt or annuities. It is better not to invest aggressively if such options are not provided. One should also find out as to how much of the investment is being invested in stocks of the employer to know the risk associated with it.

4. AGE - The most important factor in making a decision is your age. If you are nearing

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