Your grandparents probably had pensions. They worked in an era where their loyalty was rewarded even after they retired. Almost every company had a pension plan and almost every employee was able to take advantage of it because they kept that job forever. Heading into the 1980s, they all but disappeared. Companies no longer felt obligated to their employees. But you need 401k advice to invest. Employees changed job because there were now more jobs to go to. As pension plans became history, the 401k emerged as a successful replacement.

Its popularity spread quickly. Employers liked the idea that they weren't the ones funding the accounts; the employees were. They had less responsibility with 401k's because, unlike pension plans, they had no access to the money. All they needed to do was select a brokerage house and hand out paper work to the employees to begin the account. Even though companies could voluntarily contribute to the employees' plans, many did at the beginning and then changed their minds when the economy collapsed recently.

The law allows employees to invest a maximum of $15, 000 a year. It doesn't matter how much they make. These funds are comprised of mutual funds of varying degrees of safety, and you can choose which ones you'd like to invest in. Keep in mind that you can only invest in what the brokerage firm sponsors.

Even though the concept of a 401k is attractive, not all plans are worth the investment. Many employees choose not to participate in their company's plan because after doing some research they may find that the funds (mutual funds) have not performed well.

When you do contribute to a 401k, you are using pre-tax dollars. If you need to make an early withdrawal (before age 59), therefore, you will be penalized and taxed at your regular rate.

If you should change jobs, don't forget about your 401k. Talk to a financial adviser to "roll it over" into a new 401k at your job, or roll into a Roth IRA.