You wanted to start a 401(k) this year, but the final days for opening an account are sneaking up on you. If you don't open that account by the end of this year, then you're out of luck for any tax-savings advantages until next year. But, if this type of retirement account sounds or feels unfamiliar to you, I wouldn't advise rushing into it. Once you're in, you're in to the tune of ten percent to the IRS if you close it out early.

First, you may want to discuss your particular situation with a tax professional, an estate planner, or with your 401(k) plan administrator. Additionally, if you own your own business, you might need even more assurance as to whether you can get your hands on that money without penalty during a future emergency. Finally, the following eleven items beg for your attention, as you don't just throw money into a 401(k) and forget about it (although that's exactly what some people do?).

1. The first thing that can go wrong with a 401(k) is your neglect in signing up for this plan in the first place, but only if it suits your lifestyle. Call your benefits office to find out how to sign up, whether you have an employer-matching plan and auto enrollment, and how to administer your plan. As soon as you're able to participate in the auto-enrollment plan, a percentage of your paycheck is automatically deducted for that 401(k) account. You should be free to change your contribution level and investments at any time. And, you should invest as much as possible, especially if your employer will match your contributions.
   
   
2. If you cannot afford to max out your contributions, contribute enough to get your employer's full match. In other words, if your boss contributes fifty cents on the dollar up to six percent of your pay, then boost your annual contributions year by year to reach that maximum amount.
   
   
3. If you're not interested in allocating your 401(k) portfolio, consider investing in a target-date retirement fund. This type of fund allocates your money for you in line with your time horizon for retirement. However, be careful about staying in that fund if it becomes too conservative too early. Early conservatism could result in a late payout, poor returns, or both.
   
   
4. Don't pull money from your 401(k) if you need cash. You should first try to find a competitive rate on a personal loan or home equity line of credit before touching that retirement fund.
   
   
5. If you really need to borrow from your 401(k), then budget for a smaller paycheck as well. You'll receive less from your paycheck because your employer will automatically deduct the loan payments from your check along with your usual deduction.
   
   
6. If you don't plan to stay at that job forever, never fear. You currently have three options on what to do with that retirement account if you leave your job. First, you can roll your 401(k) balance into a new employer's retirement plan, assuming that new employer will agree to accept the money into its plan (you might want to know whether this new employer auto-deducts, matches, etc. as well); Secondly, you can roll your 401(k) balance into an IRA if you want access to a broader range of investments than the ones that your employer's retirement plans offer; Finally, you can leave your money in your previous employer's 401(k) plan, unless your balance is under $5,000. If you choose the rollovers, use a direct rollover or trustee-to-trustee transfer so that you never handle the money.
   
   
7. Diversify your 401(k), just as you would diversify your stock portfolio. One way to do this, especially if you're too busy to manage the account, is to look at mutual funds. But, don't load all your money into one fund, because you can diversify funds just as you would diversify stocks.
   
   
8. Even if you adore your job, loyalty should only go so far when it comes to your retirement funds. Investing solely in your company's stock isn't smart - just think Enron! It would be a shame for you to lose your job and your retirement funds in one fell swoop, especially if you're near retirement age. It's ok to own some company stock, especially if you get a discount; however, the cap on ownership should be about ten percent of your total portfolio.
   
   
9. Think about straying outside U.S. borders to invest in international stocks. When you invest a portion of your account into international investments, this move could help protect you from a weak American dollar as well as add another layer of diversity.
   
   
10. Remember that buying and selling in your 401(k) isn't a taxable event, so you save on aspirin for headaches when trying to figure out your tax basis at tax time. But, before you agree to a 401(k) plan as an active investor, make sure that plan allows for frequent trading.
    
    
11. While many employers assure employees that their 401(k) plans are free from unnecessary fees, all plans are so simple. Before you jump into funds, make sure that those options are no-load mutual funds. This means that you won't pay a percentage to get into or out of those investments. This type of fee and others, such as hidden fees, should be broadcast in the fund's prospectus. If you know the fund's ticker symbol, you can research the fund's fees online. Look for the lines labeled "expense ratio," "front-end sales load," "back-end sales load," and "12b-1 fee." If you can't find the fund online, don't freak out. Some 401(k) plans carry funds that aren't available to the general public.

As I mentioned previously, you may not be cut out for the 401(k) investment strategy, especially if you're near retirement age or if your 401(k)'s fees are expensive and your boss doesn't match contributions. Take some time to compare your 401(k) to a taxable account to see which route is better. Then take the plunge next year if you can. The water, after all, isn't all that bad (although it could be better).

Until Next Week,
Linda Goin

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