Experts say your office 401(k) is the best place to start investing. Here's how it works.

• Employer-sponsored 401(k)s are retirement savings accounts that make investing simple by directing part of your pretax salary into an investment account and paring down investment options.
• To invest in a 401(k), you need to make three decisions: how much of your salary you want to contribute, which funds you want to invest in, and what percentage of your contributions should go toward each investment.
• Generally, it's best to avoid funds with expense ratios above 1%, unless your company offers a contribution match that's higher than the fee.
• You can change your contribution rate and manage your investments at any time through your account on the plan provider's website.
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Though it's synonymous with retirement savings, the 401(k) plan is best way to start investing, whether you're in your 20s or your 40s.

A whopping $5.3 trillion was held in 401(k) plans at the end of 2017, accounting for nearly one-fifth of all retirement assets in the US, according to the Investment Company Institute.

401(k)s make investing simple by directing part of your salary into an investment account and paring down investment options. Here's exactly how to invest in a 401(k) at work:

How to invest in a 401(k)

1. Find out if you've been automatically enrolled

Many companies have an auto-enrollment feature in their 401(k) plans. Unless an employee opts out or changes their deferral rate, a predetermined portion of their pretax paycheck will be contributed to their 401(k). The default contribution rate varies depending on the company's plan specifics, but typically ranges from 2% to 5%.

To find out if you're enrolled in your company 401(k), check your paystub or contact your human resources team.

2. If not, enroll now

If you're not already enrolled, your human resources team can give you the instructions or forms you need to do so.

3. Find out if you have a company match

Ask your human resources team or check the 401(k) plan documents to find out if your company offers an employer contribution match and exactly how it is calculated.

An employer match is free money. To qualify to get the free money, you'll need to defer some of your own salary into your 401(k). For example, an employer may promise to match 100% of its employees' contribution, up to 3% of their salary. That means if an employee who earns $60,000 a year contributes 10% of their salary ($6,000), the employer will contribute $1,800 (3% of $60,000) for the year.

Minimally, many financial experts recommend contributing enough money to your 401(k) plan to qualify for your employer match before turning your attention to other tax-advantaged retirement accounts.

Are you saving enough for retirement? Find out with this calculator from our partners:

4. Understand your company's vesting schedule

Any contributions you make to a 401(k) are yours to keep, though you won't be able to access the money before age 59 and a half without incurring a penalty and/or paying income tax.

That said, any contributions your employer makes to your 401(k), including matches, may not be yours right away. Your 401(k) plan's vesting schedule outlines exactly when your employer's contributions will be yours. You can contact your human resources team to find out about your company's vesting schedule.

Most 401(k) plans have either cliff vesting or graded vesting. A cliff means that contributions made by the employer won't be the employee's to keep until they've worked at the company for a specific period of time, usually two or three years. Graded vesting means that a specific percentage of the employer's contribution vests each year the employee is at the company.

For example, your company's 401(k) plan may have four-year graded vesting — after one year of service, 25% of their contribution is yours; after two years of service, 50% of their contribution is yours; after three years of service, 75% of their contribution is yours; and finally, after four years of service, 100% of any past and future contributions are yours to keep and invest in your 401(k).

If you leave the company before your vesting period is up, you'll lose any portion of your employer's contribution that isn't already vested.

5. Choose your deferral rate

A lot of people get caught up deciding how much to contribute to their 401(k), but anything is better than nothing.

The good news is your deferral rate — the amount of your paycheck that's deferred from income taxes — is not set in stone. Most plans will allow changes to the deferral rate (also called a contribution rate or savings rate), at any time, though it could take up to a month to go into effect.

In 2019, the IRS allows employees to contribute $19,000 to a 401(k), plus an extra $6,000 for folks over 50. To max out your 401(k) this year, you'd need to contribute about $791 every paycheck (assuming 24 bi-monthly paychecks over the course of the calendar year). For example, an employee earning $125,000 would need to defer 15% of their salary to reach the annual contribution limit.

6. Choose a beneficiary

You'll also need to name a beneficiary — the person who would inherit your 401(k) in the event of your death. It can be changed later if needed.

7. Browse investment offerings and pay attention to fees

The investment options in a 401(k) are carefully selected by the employer. Most 401(k) plans offer between eight and 12 investment options, which can be a mix of mutual funds, stock funds, bond funds, and even annuities.

There are two general types of fees you will see in your account:

• Account management fee charged directly by the 401(k) plan provider
• Fee charged by the mutual funds and ETFs in your 401(k) account (expense ratio)

If you're investing in your 401(k), the account management fee is unavoidable. If your provider is charging a management fee above 1% of your account assets, you may consider directing your savings elsewhere, such as an IRA with lower fees. However, it could be worth contributing if your employer offers a match that is higher than the provider's management fee.

Most mutual funds charge a management fee, too. This is listed on each investment fund as the expense ratio, or the fee rate as a percent of assets. Again, look for funds with an expense ratio below 1%, otherwise the fees could start eating into your returns.

8. Choose your investments

Aside from fees, there are two important factors to consider when choosing specific investments: your time horizon (how many years you have until retirement) and your risk tolerance (how much risk you can withstand).

If you have decades to invest before you need retirement income and are fairly risk tolerant, you may choose a fund with more stocks, as they're considered riskier than bonds.

Some 401(k)s offer "all-in-one" target-date funds that automatically rebalance to fit into your time horizon. You may see them labeled as "Target" or "Retirement Fund," plus a year. For example, a "Target 2040" fund is made up of a blend of investments that assumes retirement in the year 2040, so investments will need to be as conservative as possible by that time. You don't have to choose a target-date fund that matches your actual retirement age.

9. Choose how much of your contributions should be invested in each fund

As you choose your specific investments, you'll decide how much of your contributions will go toward each investment, usually expressed as a percentage.

If you only choose one fund, 100% of your money will be invested in that fund. If you create a portfolio with three different funds, you can decide what percentage of your contributions will go toward each fund.

10. Log on to your account through your plan provider's website to periodically increase your contribution rate and manage investments

You can change your contribution rate and manage your investments by logging on to your account through your plan provider's website (e.g. Vanguard, Fidelity, etc.). 

Most experts suggest increasing your 401(k) contribution rate at least once a year, or each time you get a raise.

• Read more about investing for retirement:
• How to open an IRA
• 401(k) fees and investing for retirement
• 401(k) retirement plan benefits
• The best way to save for retirement

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