As promised, we’re going to continue discussing some 401k plan advice for those who are just starting to get a handle on their finances and need some basic information.  Last time, we discussed the purpose of 401k plans.  This time, we’re going to cover a few pieces of basic wisdom about utilizing the accounts.

Let’s get a caveat out of the way before we get down to brass tacks.  The advice offered in this post is not universal.  Different people confront different situations and have different needs.  Additionally, the advice may not be accepted as gospel truth by all parties.  As you’ve probably noticed if you’ve tried to dig up any investment advice, opinions vary like crazy.  Outside of “buy low, sell high” you’re hard-pressed to find any sentiment with which everyone agrees.

That being said, the tips we’re about to outline are generally agreed upon.

ONE:  GET INVOLVED!

If you have the option of funding a 401k plan, do it.  Don’t wait.  Don’t put it off until you feel like you have a little more money to toss around.  Fill out the form and start having some money deducted from you paycheck to feed that 401k.

A few years of sitting on your hands may not seem like a big deal, but it is.  Here’s a perfect example of why you’re better off starting now than waiting, courtesy of Liz Pulliam Weston:

Here’s an illustration: A worker who puts aside $4,000 a year starting at age 25 could have a nest egg worth more than $1 million at 65, assuming 8% average annual returns, which is reasonable given the long-term historical gains from a balanced portfolio of stocks and bonds.

If that worker delays investing for just 10 years — because she doesn’t understand the importance of starting early, or she’s confused by investing or by her company’s 401k choices — her nest egg is reduced to just $453,000. In other words, her retirement fund is less than half what it could have been.

Remember, your contributions will be compounding interest from day one until you pull funds from the account.  The sooner you start feeding the kitty, the better.  Becoming active is probably the most important piece of 401k plan advice you can receive.

TWO:  PUSH IT TO THE LIMIT

When it comes to the amount of dough to put in your 401k, “the more the merrier” comes to mind.  There are a few reasons why you should be doing your best to max out your annual contribution:

• The aforementioned long-term value of compounded interest on funds deposited.
• The fact that many 401k plans feature employer matching, which means you’re getting “free money” in the account based on your contributions from your employer.
• The tax value of the 401k.  Your contributions aren’t taxed and the tax liability associated with cashing out once you hit your golden years are also much more attractive than those attached to other investment options.

THREE:  LEAVE IT ALONE!

Once you have money in your 401k, don’t touch it until you reach retirement.  Having a growing nest egg may create some level of temptation, but the tax implications of early withdrawal should temper your lust to spend it.  Additionally, you’re not just decreasing your immediate balance.  Those yank-outs are also chopping down your interest earnings for years to come.  There are ways to borrow against your 401k without penalty, but only utilize these options if you’re sure of your situation, what you’re doing and don’t have a better choice at your disposal.

Those are three core pieces of 401k plan advice for novices:  Use it.  Fund it.  Leave it alone.

Following that advice won’t prevent you from following any great, more advance 401k plan advice, either.  It’s entirely consistent with most retirement investment strategies.