In order to get started taking advantage of this powerful money making tool, you will want to meet with your employer's 401k plan administrator, in order to see what is required of you to sign up.

Some plans require that a certain number of hours be worked before eligibility is met. There may also be a minimum age and other requirements.

Do a household budget, and determine how much you can afford to contribute. You may need to cut back on certain consumer items, such as not eating out as often, reducing your cable or satellite television subscription, etc., in order to find extra money for your contributions. As you will see, these small sacrifices will be well worth it to you.

There are great income tax ramifications to contributing to your plan. 401k contributions come off of the top of your gross pay, before any other taxes are withheld. The contributions are not taxed up front, but rather when you begin to draw down on your retirement, typically at age 59 1/2 or later.

Understand the "power" of the employer match and the related up front tax savings.

Here is a hypothetical example.  Let's assume:

* Your gross pay is $35,000 per year, pre tax.

* You are going to contribute 4%, or $1,400 to the plan.

* Your employer matches 3% of your earnings to the plan.

* That you are in the 20% combined Federal and State tax bracket.

* That the money is invested in something through the plan that earns a nominal 1%.

Here's the rate of return that you can expect on the $1,400 that you contributed.

1. Your employer is going to match 3% or $1,050 of your salary. $1,050 divided by your $1,400 contribution is a 75% return on your contribution.

2. You are in the 20% bracket. The $1,400 contribution comes "off of the top" of your taxable income -- it is not taxed until you begin withdrawing from the plan.

Hence, $1400 tax savings in the 20% bracket is $280 tax savings for that year, or another 20% rate of return ($1,400 time 20%).

Overall rate of return:

* Employer match $1,050, plus the $280 tax savings equals a $1,330 return by contributing.

* You have contributed $1,400, plus your employer has matched $1,050 for a total of $2,450, which earns 1%, or another $25.

* Your total "matched in", plus tax savings, plus return through the fund is:

Employer match $1,050
Tax savings $280
Plan income $25
------
Total Return $1,355

divided by:

You contributed $1,400

Rate of return 96%

You're earning a 96% yield on your contribution, and you have the peace of mind of knowing that you are contributing to your retirement!