Saving for your retirement doesn't have to be a nightmare as long as you are
aware of your options. For now, we're focusing on 401K and 403B retirement
plans. These two plans are essentially the same except that for-profit
companies use 401Ks and non-profit companies, such as the government, use
403Bs.

An employee contributes to a 401K plan with pretax salary. This means that
this account appreciates without taxation until you retire or leave the
company. So, 401K contributions are not included in your reported income.

In essence, you receive an immediate tax deduction for your contribution.

Many employees offer an automatic payroll deduction, so there isn't any extra
effort involved for you. Matching contributions or partial matching
contributions are other incentives offered by employers. For instance, my
employer matches every one of my dollars with a quarter. Sounds like small
potatoes, but remember the beauty of compound interest.

Of course, there are rules and regulations. You are typically limited to a
percentage of your income or $10,500 annually, whichever is less. So what
happens if you leave your company? You have 3 options: leave it as it is,
roll it over into another tax-deferred retirement account such as an IRA or
withdraw it all. However, early withdrawal penalties, that is before age
59-1/2, are stiff. Usually, it's a 10% penalty plus any taxes owed. So, if at
all possible avoid withdrawing any funds before age 59-1/2.

Your 401K portfolio should be chosen carefully, weighing age and risk
factors. The older you are, the less stock you should have in your portfolio.
Many financial advisors suggest that your portfolio percentage of stocks
should be your age subtracted from 100. Therefore, a 25-year-old' s portfolio
should consist of 75% stocks. However, if you're not comfortable with that
level of risk, then simply chose fewer stocks. Do remember this: over the
last century the stock market has returned an average of 11% (this includes
all wars and the Great Depression). Your plan will most likely offer 4 to 7
investment options of mutual funds, stocks, bonds, etc. for your portfolio.
My company provides 10 options of which I have chosen 5.

Chose wisely and consider how much risk you are willing to take. Most of all,
you need to be comfortable with your choices. If you need further assistance
in choosing your investment options, check out www.morningstar.com or the
MorningStar books at your local library.

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