Do you have a 401(k) plan at work? Are you taking advantage of it?

A 401(k) is a retirement plan in which your employer permits you to defer part of your pretax pay into a special kind of account. The 401(k) may also permit voluntary after-tax contributions. All of the contributions and earnings remain untaxed until they're withdrawn from the plan.

Most people's pretax contributions are limited to a maximum amount, which for 2003 was $12,000. The maximum is the same for 403(b) plans, which are similar to 401(k)s but apply to employees working for schools and nonprofits.

A 401(k) plan gives you a range of ways to invest money for your retirement. These methods may include institutional or mutual funds investing in the money market, bond market, or stock market; annuities; guaranteed investment contracts; company stock; and self-directed brokerage accounts. A typical plan will offer a selection of a money market fund, a bond fund, and a stock fund. (If your 401(k) plan doesn't offer an index fund, ask your plan's administrator to consider adding one.)

In general, money can be withdrawn penalty-free from a 401(k) plan on five occasions: termination from employment, disability, reaching the age of 59½ (or age 55 in some cases), retirement, and death. Some plans may include provisions for loans and/or hardship withdrawals.

One great benefit of 401(k)s is that if your employer matches your contributions to any degree, that's free money available for you. If you've got matching funds available, earn as many of those dollars as possible.