Dear Lifehacker,

I want to put a little something away for the future, but I’ve heard a lot of people say that maybe my company’s 401(k) isn’t the place to keep my money. Should I invest on my own, or stick with what my employer offers? Should I do both? How can I tell if my 401(k) is good or bad?

Forward Thinker

Dear Forward Thinker,

Well, first of all, congratulations! Whether it’s retirement, a future where you just want to work less and do other things more, or you’re planning for unforeseen costs like medical expenses, you’re already doing it right by thinking ahead.

The core question you have, though, is whether it’s best for your money to invest in your company’s 401(k) retirement plan, or whether you should strike it out on your own and do your own thing-either by opening an IRA or putting your money into some other investment vehicle. Here are a few ways to tell.

How to Tell a Good 401(k) from a Bad One

Don’t discount your employer’s retirement plan out of hand. Putting your money into one is generally a good idea, especially if you’re not doing any other saving for the future. Whether you plan to retire in the traditional sense, or you just want to make sure you have money in the bank when you get older, socking money away now is a smart decision, and your employer’s 401(k) can have some strong benefits. Here are some things to keep in mind if you’re weighing the merits of your 401(k):

• All 401(k)s offer pre-tax deposits that reward you for saving money. This is the biggest benefit of any pre-tax savings program. Since the money goes right into your retirement account, you it’s not taxable income on your paycheck. t’s tax-deferred so you can get out from paying income taxes on it until a time when, presumably, you’ll be retired and in a lower income bracket.
• A good 401(k) comes with a strong matching contribution from your employer. Most companies offer a 401(k), but the best ones match your contribution up to some percentage of your salary. If your company offers a match, you should at least contribute enough to get the full value of that match-otherwise you’re leaving free money on the table. The higher the percentage match, the better you come out for contributing.
• In a good 401(k), your employer contributions vest quickly. Matching contributions from companies usually have a vesting schedule, or a period of time over which the money becomes truly yours. If your employer’s contributions vest over two years, for example, that means half of whatever they put in to match your contribution is 50% yours at the end of the first year. After your second year of employment, all of their contributions are yours. If you leave before the end of the second year, they get that half back. Vesting schedules vary from company to company, so make sure you look at yours. Some companies vest over a year or two, others have vesting schedules as staggered out as five or six years. This is partially used as a way to discourage you from taking the matching money and leaving, but a quick vesting schedule is a good thing to look for in a retirement plan.
• A good 401(k), you have a wide selection of funds to chose from, from a well-regarded financial institution. Another good sign that your company’s retirement fund is a good one is if the servicer is a well-regarded financial institution with a solid history. Sure, given the economic issues in recent years, it might be tough to think of anyone as well-regarded, but the companies that stuck it out and turned their funds around are the ones you want to look for. Similarly, if your retirement fund offers a wide array of low-cost funds to choose from for people with different savings goals, it’s worth a good look. If your company only has a few bad or high-fee funds to choose from, you may be better off striking it out on your own. Some companies get the most bare-bones 401(k) plan available just to say they have one.
• Good 401(k)s don’t cost you tons of money in fees. This part is pretty simple. Low fees typically mean higher returns for you. High fees mean that the financial management fund makes a ton of money on your retirement plan, but that’s all money that you’ll never see. Compare and contrast those fees-sometimes clearly labeled, other times bundled up under your fund’s expense ratio-across funds in your plan. Then compare it with the fees you’d pay if you opened an Individual Retirement Account, or IRA (in which you usually have more choices). Ratios under 0.1% are generally considered good. Under 0.5% is considered okay but not great, and anything higher, especially over 1%, is a serious warning sign. Our own Whitson Gordon offered up some more info on this here. but if the funds your company offers are high-fee, you’re better off investing just enough to get an employee match (if there is one), then taking the rest of your money to an IRA. This interactive guide from PBS’s Frontline walks you through how fees add up. If you’re looking for help rooting them out, previously mentioned FeeX or FINRA’s Fund Analyzer. which we’ve also highlighted. can help you compare them to other funds, and show you how much you’ll pay in fees over the life of your account, whether it’s a 401(k) or an IRA.
• Good 401(k)s don’t pass along administrative fees to employees. This one is a bit complicated to measure, but this piece from US News Money breaks it down nicely. Ultimately you want to know whether the administrative costs for the plan are being paid by the plan administrator (your employer) or its participants (its employees). In the case of the latter, all of those great features-investment seminars, financial experts, brochures, and more, are all paid for by you. not your employer. Check and see if your plan has revenue sharing as well-where things like marketing and sales associated with the plan take a bite out of your bottom line as well.

This isn’t an exhaustive list, and not every plan will hit all of the points here. Some plans have a great match but bad fund selection. Others will have great funds, but no match. If your employer offers other perks for enrolling in their 401(k), by all means, take advantage of them. Some companies will sign you up and contribute a percentage of your salary to an account automatically, breaking down the barrier to you having to do it yourself. Others have financial planners available to talk through your specific situation with. If you can take advantage of those services, by all means you should.

However, not all 401(k) plans are effective. Last year, Frontline ran a special on how financial institutions protect and manage retirement accounts. and the results were pretty depressing. The investigation uncovered financial management firms obfuscating or failing to properly disclose the high fees associated with their funds, which allowed them to rake in cash for managing their clients’ investments when they really weren’t doing much at all. Other 401(k) plans just didn’t pan out the kinds of returns their prospectuses and brochures promised, leaving the people who invested in them in a lurch looking for ways to make up the gap between reality and their financial goals.

Either way, once you’ve run through this list and taken measure of the plan you have available, you can move on to the next step, turning what you know into a strategy that works for you.

The Ladder Method and When You Should Choose Multiple Options

It’s important to make sure you’re saving something as opposed to saving nothing-or worse, socking your money away in something like precious metals because a guy on TV told you to, or under your mattress because you don’t understand how the market works. You shouldn’t have to feel like you have to choose a 401(k) or something like an IRA. The best option for you may be a 401(k) and an IRA, especially if you have debt to pay off, or if your employer’s plan is pretty crappy, but they offer a match you want to take advantage of. The previously mentioned Ladder Method is a great way to make the most of a bad financial situation, or of bad investment options.

First, you should invest enough in your employer’s 401(k) as necessary to take advantage of the match, if there is one. It’s free money, like we mentioned. Even if the options have high fees, some money is better than no money. From there, pay off your debt. After that, open a Roth IRA (which comes with a ton of benefits ) and contribute as much as you can to it, up to the limit.

Remember, plans with high fees and tons of administrative costs disclose them because they have to. or else government financial regulators will force them to. They don’t, however, have to advertise them, or make them easy for you to find them. You have to go look them up, and find out on your own whether their fees are high or low by comparison. It’s worth it to do that homework, choose better funds if they’re available, or, if nothing is available to you, open an an Individual Retirement Account (IRA).

By and large, these investment vehicles can and will make you money over the long term. The key is whether or not it’ll be enough for you as you get older. Similarly, it’s important to give your plan a checkup from time to time to make sure it’s performing as expected, and there haven’t been changes that cost you money.

Inflation, Self-Employment, and Other Things to Keep in Mind

There are some things you should keep in mind beyond performance and options when choosing to invest with your 401(k) or do it on your own. First and foremost, there’s nothing saying you can’t do both if you can spare the money. You get tax benefits ( albeit different benefits ) on both types of investments, but saving more for the future is a good thing if you can spare that money today.

Beyond that, you’ll hear a lot of people complain about inflation when it comes to saving. Virtually every investment vehicle will outpace inflation (and if you find one that doesn’t, something is very wrong). While economic downturns like the one in 2008 may take a bite out of them, a good financial manager (or you, if you’re well versed in asset allocation) will adjust to protect your assets, even if you take some short-term losses. After all, the health of your assets is the health of their firm-and their ability to make money from those assets. Remember, you’re investing for the long term, not immediate market changes. If you’re older, it can be hard to watch your savings evaporate because of a market crash only a few years before you planned to withdraw them. Even so, that’s what diversification is for. All you need to do is pay attention, stay educated, and keep a cool head.

If you’re planning to work for yourself or start a business, or if your next employer doesn’t offer a 401(k). you may want to stick it out with your current plan. Even if you move to a job where there’s no 401(k), you may be able to continue contributing to that old one. This guide from US News Money outlines some reasons why you may want to keep your current 401(k). If you do choose to move it or roll it into an IRA, we have a guide to help you with that decision.

Talk to an Expert

While these suggestions will definitely put you on the right track, we can’t understate how valuable it can be to talk to a financial planner or accountant about your particular situation. You don’t have to be wealthy or have complicated finances to find someone who can help. We’ve shown you how to find a good one and what you should ask when you do. Working with someone who can put their (presumably qualified) eyes on your money and talk to you about your savings goals will make all the difference.

From there, they can help you make the call. With luck, they can help you maximize those investments, show you how to keep track of them, and then send you on your way with the knowledge you need to DIY from there on.

Either way, remember to run the numbers against your personal finance goals, your salary, your age, and your earning potential before making a decision. Do your homework first, then make your move. You’ll be a happier investor for it.