It’s hard for me to contain my excitement when I think about all of features that a 401(k) gives us to save toward the comfortable retirement lifestyle we all want. We just need to take FULL advantage of their features. Here are a few of my favorites…

Hands down, 401(k)’s create the opportunity for automatic, long-term savings, which we know is key to a secure retirement. In fancy terms, we call it dollar-cost-averaging into the market, but it just means that you’re constantly putting money into the markets on a consistent basis, whether the markets are up, down or sideways. This allows you to lower the overall cost of buying into the market, as compared to lump-sum sporadic purchases.

How about the tax deduction that you receive for your contributions? This is especially helpful if you’re in a higher tax bracket now than you expect to be in retirement. Just think, if you’re in the 24% bracket now, then every ten dollars you save really only costs you $7.60 in actual “lost” cash flow going to savings instead of spent.

Most plans offer an employer match, which is a golden ticket to building a 401k balance quickly. A common match is 50% of the first 6 percent. So if you put in 6 percent, they’ll match 3%, for a total of 9% of your paycheck going into savings. It’s free money! Please don’t pass this up – at a minimum, you should always be contributing an amount to capture your employer’s full match.

The real power of a 401(k) that I find thrilling is in the tax-deferred compounding growth effect. You know how you always hear that you need a million dollar to retire, and you think how impossible that sounds? You’re right that it’s hard to save that much, but it’s not as hard to create that much, using money to make more money, or “compounded growth”. Albert Einstein called compounding “the 8th wonder of the world.”

A quick example: If you save $200/month at age 25 until you retire at age 65, and earn an average of 7% annually, compounded monthly, you’ll have $525,000. Here’s the kicker: You only contributed $96,000 of your own money ($200/month for 480 months), and the rest of the balance ($429,000) is compounded growth, or money using itself to make more money. Throw in a 50% employer match, where your 401(k) is receiving $300/month, and you’ll have $787,500 in 40 years at 7% annually, compounded monthly. Again, you’ve only saved $96,000 and the rest is coming from your employer and market growth. There’s magic in that math you can’t deny.

Lastly, for folks who want to build tax-free wealth but make too much money to contribute to a Roth IRA, you can instead contribute to a Roth 401k, which has NO income limits. Your 401(k) has to offer this feature, so ask your HR department. You can split your contribution between pre-tax and Roth; it doesn’t have to be one or the other.

I’m sure you can see why I think 401(k)’s are amazing – they’re chock full of features to help us build the wealth we need for a fantastic retirement. The one thing compounded growth needs is time and smart investment choices – so don’t delay in making sure you are taking FULL advantage of all your 401(k) has to offer.