Significance

• A 401k plan is an excellent way to save for retirement. In addition to contributions made by the employee, the employer may make matches in the form of profit-sharing or incentive additions. But the quality of the 401k can depend on the investment options available. A selection of high-quality mutual funds is desirable.
  
  

Considerations

• The investment options available, such as mutual funds, depends on who holds and runs the plan. Many 401k plans are outsourced by firms to banks, financial service companies or mutual fund enterprises.
  
  

Options

• Mutual funds are often one of the investment types offered in 401k plans. However, the number of funds or mutual fund families available will differ from plan to plan.
  
  

Features

• One advantage of investing in mutual funds in a 401k is that the biweekly or monthly contributions amount to dollar-cost averaging. This method, which lessens investment risk, involves buying a fixed-dollar amount of a particular investment on a regular schedule, regardless of the share price. Also, mutual funds are a pool of stocks or bonds, so the risk is not limited to one stock or other holding.
  
  

Withdrawal

• If an employee leaves, quits or is fired, the 401k money can be taken elsewhere. The 401k can be rolled over into a new employer's 401k plan or into a personal IRA. Mutual funds can be transferred without being converted into cash.
  
  

Benefits

• Well-chosen mutual funds that have a strong performance record are a good investment option in a 401k.