When it comes to retirement, long past are the days when your company sees you off with a gold watch and a fat pension. And with all the political caterwauling, banking on Social Security decades down the line probably isn’t shrewd.

So how to plan for your golden years? Most corporations offer a 401k, a plan that allows you to stash cash to invest toward retirement.

Even though it has a sleep-inducing name that only a bureaucrat could love, the 401k is a potent tool to build your nest egg. And for many workers, a 401k has something especially enticing: Free Money! That’s right, many corporations will match portions of your investments in a 401k. And too often folks, especially younger ones, don’t take advantage of this free money.

But we’re getting ahead of ourselves. First, let’s get a handle on the basics. A 401k is a retirement savings plan sponsored by an employer. It lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes aren’t paid until the money is withdrawn from the account.

401k plans, named for the section of the tax code that governs them, arose during the 1980s as a supplement to pensions. Most employers used to offer pension funds. Pension funds were managed by the employer and they paid out a steady income over the course of the retirement. (If you have a government job or a strong union, you may might still be eligible for a pension.) But as the cost of running pensions escalated, employers started replacing them with 401ks.

With a 401k, you control how your money is invested. Most plans offer a spread of mutual funds comprised of stocks, bonds, and money market investments. The most popular option tends to be target-date funds, a combination of stocks and bonds that gradually become more conservative as you reach retirement.

While a 401k can help you save, it has plenty of restrictions and caveats. In most cases, you can’t tap into your employer’s contributions immediately. Vesting is the amount of time you must work for your company before gaining access to its payments to your 401k. (Your payments, on the other hand, vest immediately.) It’s an insurance against employees leaving early. On top of that, there are complex rules about when you can withdraw your money and costly penalties for pulling funds out before retirement age.

To oversee your account, your employer usually hires an administrator like Fidelity Investments. They’ll email you updates about your plan and its performance, manage the paperwork, and assist you with requests. If you want to keep watch over your account or shift your money around, go to your administrator’s web site or call their help center.

Want to Know More?

• Should You Invest in a 401k?
• How Do You Make the Most of Your 401k?
• Grilling Guide: Questions to Ask Potential Employers About 401k Plans