When you set up a 401(k) plan with your employer, you must keep an eye on how it's doing. This is your retirement fund and should be seriously monitored. You can monitor your retirement portfolio by reading the annual reports from your employer and daily or weekly in the newspaper or online.

Keep in mind, your employer never guarantees your 401(k) plan. Your employer is considered a fiduciary that is responsible for supervising the plan, not guaranteeing it. Your employer is responsible for choosing competent plan managers and so on and should give at least three investment choices to plan members. The Department of Labor has issued voluntary regulations that state the employer should give three investment choices at different levels of risk and allow your choice to be changed periodically.

As with your employer, the federal government does not guarantee your 401(k) plan either. You account value will rise and fall with the market and you could lose all through bad investments. The federal Pension and Welfare Benefits Administration ensures that all employers and 401(k) trustees follow government requirements to help ensure your plan is as safe as possible.

When you retire, if you have a 401(k) plan, you will probably be given a few choices as to how it's distributed. If you're over 59 ½, you can take the money in a lump sum and pay income tax on it. If you're under 59 ½, you can still take the lump sum but will have to pay a penalty in addition to the income tax. You can choose to rollover to an IRA whether or not you've reached 59 ½ and continue with the tax-deferred option with no penalty. If you have more than $5000 in your plan, you can leave the money in the plan but you will have less control than with an IRA.