Perhaps the most instrumental wealth building tool ever devised. Your companies 401k plan is one of the fastest ways to build an enormous nest-egg.

People tend to use the 401k and Roth IRA almost interchangeably.
There not. 

Some might be better for you in one situation compared to another. 
When we say things like "most important wealth building tool" and one of the fastest ways to build wealth we know some people are still going to be put off by it.

And it's easy to understand why.
In a financial landscape so densely packed with what amounts to hyperbole, clickbait, and what can only be described as get rich schemes, solid, honest, and reliable information is hard to find.
It becomes even more difficult to recognize sound advice when we do see it.
Not helping is all the "latest 401k scam" and "you'll lose it all" online articles, if you can call them that constantly bombarding us.

Before we go any further please note we touch on 401k's in the "401k VS Roth IRA section but only briefly.
This section's purpose is to more comprehensively explain what a 401k is and what it can do for you.
Take note this section is focused on what to expect from your standard company offered 401k (or 403b for some of you).
In the next section we will dive into another great retirement option for some of you. 
The Roth IRA.
Also be aware a clear explanation as to the differences can be found in the article marked "401k VS Roth IRA" section.

So whats so great about a 401k?

Everything!
 O.K., not everything.
 But there is so much to like about them even those who take part in them might not realize all the advantages.
 A little research and diligence can transform even a mediocre plan (unfortunately there's some around) into a solid one.
Moreover an already solid plan can become a life changing financial instrument.

So exactly what is a 401k?
First implemented in 1978 and named after the Internal Revenue Code Section 401(k) it has for all practical purposes served to replace traditional company pension plans.
It's for this reason 401k's were often initially viewed skeptically by many who were more familiar with and comfortable with the idea of a traditional pension.
In truth 401ks are generally as good or bad as the choices your company offers and the decisions you make within that environment.

Typically 401ks offer several features making them a nearly unmatchable retirement tool, such as.
Your contributions are taken out PRE-TAX. 
This means your being taxed at a lower rate.
 A 15% deduction from your paycheck likely comes out to more like 11% in actuality.
 In other words, 15% won't come out 15%.
 Because of the pre-tax contribution.

There's generally a company match. 
Normally along the lines of half up to 6%.
 You put in 6% and they add 3%.
 An immediate 50% gain!

It places the two most important elements of successful wealth building on your side. 
Time in the market and consistently contributing. 
Once set up with a 401k these are the most important two factors.
 Every paycheck puts more money into your investments and it remains that way as long as your either still with the company or you voluntarily quit contributing.
Even if you part ways with your company for any reason your 401k will still stay with you. 
Which brings us to our next point.

You CAN take it with you. 
At least in terms of a 401k. 
If you start another job and they have a 401k you can rollover your previous companies 401k into your new plan. 
You might not be fully vested yet, so double check that.
Leaving before fully vested is a mistake that costs thousands and could happen to you.

It creates generational wealth.  
Unlike a pension plan, a well funded wisely invested 401k plan, even one thats been rollovered several times can over enough time reach into the MILLIONS! 
Along with your other financial assets could mean millions of dollars left to your children and grandchildren.

You don't have to wait until sixty-two or sixty-five to start collecting those checks.
 You can start collecting on that 401k money at fifty-nine and a half.
There are various other reasons 401k beats a traditional pension.
Traditional plans have control over how your investments are allocated and the simple fact you almost certain to end up with far more money than a pension could ever give you and on and on and on.

As great an idea as a 401k is it's not completely without its faults.
There are some potential pitfalls along the way that you need to avoid.

Not getting your full employer match.
This is a big mistake and the most common.
 Most companies nowadays simply enroll you in their 401k plan and start deducting a bare minimum. 
Generally about 2%. 
This isn't a mistake on their part but on your part.
 Why? 
Because most employers will match half of your contributions up to 6%.  With the match that brings it up to a total of 9%. So just raising your automatically deducted 2% to 6% will bring your total contribution to 9%.
 That's easily hundreds of thousands of dollars in additional retirement income for many of us. 
And the sacrifice you make is a bare minimum.
Get your full match!

Making poor choices with your investment choices.
This mistake is, to be fair, a more difficult problem to remedy than mistake number one.
 There's a few reasons for this.
First. Your company's choice of 401k administrators may not offer great investment choices in the first place.
The first thing to note when packing an investment for your 401k is the cost of the fund's management fee structure.
Low-cost index funds are designed to mirror the market itself, or at least some particular segment of the market nearly exactly.
In addition to matching the market their fees, and fees are EXTREMELY IMPORTANT are run at a fraction of actively managed funds.
For instance Vanguard and Schwab both offer S&P 500 index funds for.004 and.003, respectively.

Investing your 401k into company stock.
No.
 Don't do this if even remotely possible.
 If you feel pressured don't make it any more than 10%.
At most.

Jumping in and out of your 401k everytime money gets tight.
You're not making money when not contributing.
Not as much anyway. Don't do it.
The time to address potential financial setbacks is while it's still a potential issue.
Do what you have to in order to save money to help defray any upcoming bills.
Theres HUNDREDS of money saving tips under the Saving Money section.
 Use them.

Make sure your fully vested before moving to another job.
Many companies require you to be employed a certain length of time before becoming fully vested.
For those who don't understand what vested means it's the length of time before your employers contribution officially becomes yours. 
Their contribution is still growing inside your 401k but if you leave before being vested they, the employer, keep that portion of the money. 
The amount you contribute toward your 401k remains yours for life. 
In other words, don't leave your company before your fully vested.

Invest as much as you can. 
Even if it hurts invest as much as you can.
Notice we said "as much as you can". 
Not so much you can't make your bills.
Bumping your contribution to 15% in a solid investment choice, even on a low salary will make a real difference.

Don't borrow from your 401k.
Your 401(k) is a retirement vehicle, not a bank.
If you HAVE to borrow money for any reason go almost anywhere else first.
Just a reminder.
 No matter how desperate the matter don't resort to payday type loans.
 Ever.
Taking matters from bad to worse is never the right direction.

Even worse than borrowing from your 401k?
Closing out your 401k completely. 
This nearly, though not quite borrowing from payday territory.
Again not quite that bad.
 But still really bad.
The penalties for cashing out a 401k before fifty-nine years is massive.
Your also possible jeopardizing the vested portion of your account.

Jumping from "hot" investment choices to achieve a higher return.
Long-term its almost not even possible to outperform the marker.
 Most professionals can't even do it.
A steady 8%–10% return can reasonably be expected from an S&P 500 index fund with an expense ratio of about 0.04% is almost unmatchable and far more realistic.

Not rolling over your 401k when you do start a new job.
One of the best features of your 401k is the ability to roll it over to your new companies plan.
Don't let an old plan (or plans) sit idle slowly growing while fees eat into it while you could rollover to a new plan.

Taking out too much per month after you retire.
Now that you've made it, don't blow it now.
Taking out far more than you need risks putting you in a higher tax bracket than necessary.
Remember most 401k distributions (thats the money your taking out) are taxable at different federal tax brackets and at the state level it varies wildly.

While there's quite a few don'ts when it comes to setting up and maintaining a 401k, or any retirement account for that matter, there's still so many reasons to do it than not.

Again a well funded wisely invested 401k has made millionaires and multimillionaires of millions of people.