You may think that you can make more money by investing outside of your 401k, but that's not necessarily true. If you are eligible to contribute to your company's 401k plan, then your first investment dollars should go toward making the maximum contribution. Don't be tempted by short term gains elsewhere until you have contributed fully in your 401k. Here are three reasons why:

• Tax Savings. You contribute money into your plan with pre-tax dollars. That is a huge advantage in investing because more of every dollar you earn goes into your plan for your benefit.
• Tax Deferral. All the investment income (interest, dividends, and capital gain distributions) is not taxed within your 401k plan. That means your money will grow much faster without taxes on your investment earnings. This compounding effect over time is huge.
• Automatic Increase in Contributions. If you are putting a percentage of your salary into your 401k plan, then as you make more money your contributions to your plan increase. When you contribute more, you have the potential to accumulate more. This is a painless way to save more.

When you look at the powerful advantages above, it is hard to find any investment that can build wealth as quickly as a tax deferred plan like the 401k. Of course, there will always be high risk/high reward investments around that will tempt you to invest. With the 401k plan, even if you choose poor performing investments, over time you will have the potential to do better than if you had those same investments outside of the 401k plan.

By remembering the three reasons above, you will stick to contributing the maximum to your 401k plan and watch your money pile up.