Make most of 401(k)

Money Watch is a personal finance column that features a financial planner from the National Association of Personal Financial Advisors answering reader questions about saving, protecting and growing your money.

I can participate in my company 401(k) plan, but honestly, I dont know how it works. And how can I make the most of it?

Contact your benefits department and find out how to have money deferred from your paycheck into the plan. A growing number of companies automatically enroll employees in their 401(k) plan, although workers can opt out if they do not want to participate.

Auto enrollment makes it very easy to start saving for retirement. But it tends to start out with a low default contribution rate, often 3 percent of salary. And because auto-enrolled workers may become complacent, some employers are starting to include auto escalation, which gradually increases the contribution rate.

But it seems you may have to make an effort to enroll in your plan and carefully make the contribution rate and investment decisions on your own. Among the things to consider:

Does your employer offer a match on some or all of your contribution? If so, you will want to ensure that you contribute at least enough to get the maximum matching contribution from the company.

As an example, a company might match 50 percent of your contributions up to 6 percent of salary. If you are able, you would want to contribute at least 6 percent to receive the full match. This is free money.

You will need to carefully consider the investment options available to you. Most 401(k) plans offer asset allocation mutual funds, which have a mix of stocks, bonds and cash. Your choice should be related to your risk tolerance and how many years you have left before retirement. And if you have other investments you will want to take those into account in making this decision.

Many plans also provide target date funds, which are mutual funds that are professionally managed and allocated using the target date on the fund as your projected retirement date. As time goes on, the investment allocations are gradually switched from stocks to bonds and cash.

But the most important factor is to save as much as you can on a regular basis. While the investments chosen are important, most studies that Ive seen indicate that the biggest factor in retirement savings success is the amount saved so start early and keep with it.

2013 USA TODAY. All rights reserved.