by Vivian Wagner

Created on: August 13, 2008   Last Updated: September 03, 2008

Insider Tips on 401(k) Investing:
Getting the Most from your Retirement Dollars

Millions of Americans have 401(k)s, and yet for many people, navigating the world of these employer-sponsored retirement plans can be daunting. To help you out get the most out of your 401(k), here are tips from several experts about what to do and what not to do with your 401(k).

Invest in it

The biggest single mistake that people make when it comes to 401(k) investing is not to do it.

"You're actually losing free money that the company would put into it," said Darrin Farrow, President of Pension Builders and Consultants, a Westlake, Ohio-based company that designs and implements retirement plans.

Even if your employer won't match your contributions, not investing means you're not taking advantage of the tax benefits inherent in 401(k) investments.

"People think, I can't afford it, but they don't realize it's a pre-tax contribution," Farrow said. "Those savings add up."

Chad Parks, CFP and CEO of The Online 401(k), a retirement plan provider for small businesses based in San Francisco, agrees.

"Every little bit helps," said Parks. "If there is a match, you're leaving money on the table. If there isn't a match, you're losing the tax benefit, which is the government's match."

How much you are allowed to invest is dictated by governmental regulations. For 2008, the maximum annual contribution an individual can make is $15,500, and the catch-up amount for people over 50 is $5,000.

Choose the Right Investments
The investments you choose for your 401(k) depend on several factors, including your age and your tolerance for risk. There are many online tools and calculators that can help you determine the mix of investments that are right for you. If you're not comfortable making those decisions, you can seek the help of a financial advisor. Some company plans offer management advice, or you can find another advisor.

The basic idea is that the further you are from retirement, the more equity exposure you'll want in your portfolio. Some plans offer target date funds, which automatically adjust their asset allocation over time. If you're an investor who doesn't like to think much about your investments, these may be for you.

"For getting someone to put money aside regularly and have an asset allocation that works for them, target date or target age funds are a good thing," Parks said.

Other advisors think target funds are a bit too one-size-fits-all and recommend taking a more hands-on approach to investing.

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