Contributing part of your salary to a 401(k) gives you three compelling benefits:

• You get an immediate tax break, because contributions come out of your paycheck before taxes are withheld.
• The possibility of a matching contribution from your employer — most commonly 50 cents on the dollar for the first 6% you save.
• You get tax-deferred growth — meaning you don’t pay taxes each year on capital gains, dividends, and other distributions.

The federal limit on annual contributions has been increasing gradually, and is $16,500 for the 2010 tax year. If you’re 50 or older, you may contribute an additional $5,500

Keep in mind, however, that while federal law sets the guidelines for what’s permissible in 401(k) plans, your employer may set tighter restrictions. Plus, it will take time for the administrators of your plan to implement the changes.

What’s more, there are other federal non-discrimination tests a 401(k) plan must meet, one of which applies to “highly compensated” employees. So if you make more than $110,000 a year (the limit for 2010), you may not be permitted to contribute as high a percentage of your salary as some of your lower paid colleagues.

For all its tax advantages, the 401(k) is not a penalty-free ride. Pull out money from your account before age 59-1/2, and with few exceptions, you’ll owe income taxes on the amount withdrawn plus an additional 10% penalty.

Also, be aware of your plan’s vesting schedule — the time you’re required to be at the company before you’re allowed to walk away with 100% of your employer matches. Of course, any money you contribute to a 401(k) is yours.

The above post is from the CNN Money series called “Money 101.”

1. No matter your net worth, it’s important to have a basic estate plan in place.

Such a plan ensures that your family and financial goals are met after you die.

2. An estate plan has several elements.

They include: a will; assignment of power of attorney; and a living will or health-care proxy (medical power of attorney). For some people, a trust may also make sense. When putting together a plan, you must be mindful of both federal and state laws governing estates.

3. Taking inventory of your assets is a good place to start.

Your assets include your investments, retirement savings, insurance policies, and real estate or business interests. Ask yourself three questions: Whom do you want to inherit your assets? Whom do you want handling your financial affairs if you’re ever incapacitated? Whom do you want making medical decisions for you if you become unable to make them for yourself?

4. Everybody needs a will.

A will tells the world exactly where you want your assets distributed when you die. It’s also the best place to name guardians for your children. Dying without a will — also known as dying “intestate” — can be costly to your heirs and leaves you no say over who gets your assets. Even if you have a trust, you still need a will to take care of any holdings outside of that trust when you die.

5. Trusts aren’t just for the wealthy.

Trusts are legal mechanisms that let you put conditions on how and when your assets will be distributed upon your death. They also allow you to reduce your estate and gift taxes and to distribute assets to your heirs without the cost, delay and publicity of probate court, which administers wills. Some also offer greater protection of your assets from creditors and lawsuits.

6. Discussing your estate plans with your heirs may prevent disputes or confusion.

Inheritance can be a loaded issue. By being clear about your intentions, you help dispel potential conflicts after you’re gone.

7. The federal estate tax exemption — the amount you may leave to heirs free of federal tax — changes regularly.

The estate tax hit $3.5 million in 2009, but was phased out completely in 2010, but only for a year. Unless Congress passes new laws between now and then, the tax will be reinstated in 2011 at $1 million.

8. You may leave an unlimited amount of money to your spouse tax-free, but this isn’t always the best tactic.

By leaving all your assets to your spouse, you don’t use your estate tax exemption and instead increase your surviving spouse’s taxable estate. That means your children are likely to pay more in estate taxes if your spouse leaves them the money when he or she dies. Plus, it defers the tough decisions about the distribution of your assets until your spouse’s death.

9. There are two easy ways to give gifts tax-free and reduce your estate.

You may give up to $13,000 a year to an individual (or $26,000 if you’re married and giving the gift with your spouse). You may also pay an unlimited amount of medical and education bills for someone if you pay the expenses directly to the institutions where they were incurred.

10. There are ways to give charitable gifts that keep on giving.

If you donate to a charitable gift fund or community foundation, your investment grows tax-free and you can select the charities to which contributions are given both before and after you die.

The above post is from the CNN Money series called “Money 101.”

1. All policies fall into one of two camps.

There are term policies, or pure insurance coverage. And there are the many variants of whole life, which combine an investment product with pure term insurance and build cash value.

2. Insurance is sold, not bought.

Agents sell the vast majority of life policies written in the U.S. because the life insurance industry has a vested interest in pushing high-commission (and high-profit) whole-life policies.

3. Whole life is expensive.

Policies with an investment component cost many times more than term policies. As a result, many people who buy whole life often can’t afford an adequate face value, leaving themselves underinsured.

4. Whole-life policies are built on assumptions.

The returns quoted by the agent are simply guesses – not reality. And some companies keep these guesses of future returns on the high side to attract more buyers.

5. Keep your investing and insurance strictly separate.

There are better places to invest – and without the high commissions of whole-life policies.

6. Buy enough term coverage to fill your needs.

Life insurance is no place to skimp, especially with rates at historic lows.

7. Match the term of the policy to your needs.

You want the policy to last as long as it takes for your dependents to leave the nest – or for your retirement income to kick in.

8. Buy when you’re healthy.

Older people and those not in the best of health pay steeply higher rates for life insurance – so buy as early as you can, but don’t buy until you have dependents.

9. Tell the truth.

There’s no sense in shading the facts on your application to get a lower rate. Be assured that if a large claim is made, the insurance company will investigate before paying.

10. Use the Web to shop.

Buying life insurance has never been easier, thanks to the Internet. You can get tons of quotes – and avoid the pushy salespeople.

The above post is from the CNN Money series called “Money 101.”

1. Insurance costs a lot but having none costs more.

There are sensible ways to save money on insurance, but skipping coverage isn’t one of them. Medical bills from even a minor car accident can deplete your savings – a major illness can push you into bankruptcy.

2. If your employer offers insurance, grab it.

Group coverage, particularly when it’s employer-subsidized, is almost always a better deal than anything you can get on your own, even if you’re young and healthy. If you’re NOT young and healthy, it’s definitely a better deal.

3. Comparing plans is tough but necessary.

Unfortunately, there is no such thing as standard coverage. Benefits and costs vary widely from plan to plan. If you have choices, you’ll have to examine each one closely to find the best deal.

4. The lowest premium isn’t always the cheapest plan.

What your insurance covers is just as important as, and sometimes more important than, what you pay up front. Ultimately, the cheapest plan is the one with the best price for the benefits you’re most likely to use.

5. Even good coverage can have big loopholes.

You can count on your health insurance to cover you for a hospital stay. Most policies cover doctor visits, but benefits for mental health, prescription drugs and dental care are strictly optional.

6. You’ll pay more for freedom.

Plans with the most comprehensive coverage at the lowest out-of-pocket cost require you to use a specified network of hospitals, doctors, labs, and other providers. The more flexibility you demand, the more you’ll pay, in either premiums or co-payments.

7. You can check out networks before signing up.

A growing number of public and private sources compile information on the track records of individual doctors, hospitals, and health plans.

8. You can keep your insurance if you lose your job.

State and federal regulations protect you from losing your health coverage in the event you lose your job. Unfortunately, they offer little protection from high premium costs. However, jobless workers may get help paying for these premiums as part of the economic stimulus bill.

9. Working couples have more to think about.

If you and your spouse both get health insurance at work, you must sort out whether it makes more sense to have two policies or for one of you to cover the other. If you have kids, you need to decide who’s going to cover them.

10. Tax breaks can help.

Ordinarily medical expenses, including insurance premiums, are not tax deductible until they exceed 7.5% of your income. However, if you’re self-employed or your employer offers a flexible spending account, you can get a tax break without meeting the threshold.

1. Anyone can call himself a planner.

To avoid amateurs, hire a planner who’s earned special credentials (such as a Certified Financial Planner or Personal Financial Specialist designation) by meeting training standards or having a certain level of experience.

2. Planning is more than investing.

Not all planners offer comprehensive services. Some just give investment advice or focus on one aspect of planning, such as insurance or taxes.

3. Expand your choices.

When hiring a planner, interview at least three pros to find the one who can deliver the services you need and who’s compatible with your style.

4. Personal references are a good place to start – but not the last stop.

A reference from a friend or family member is a great way to search for a financial planner. But make sure you’ve got similar needs as the person who’s giving the referral. Go to groups like the Certified Financial Planner Board of Standards and the Financial Planning Association for additional references.

5. Understand how your planner is getting paid.

The three most common set-ups are: Fee-only, fee-based, and commission-based. Fee-only planners don’t get commissions for the products they sell – fees are for the advice they give. Fee-based planners may receive commission on some products they sell, but most of their money comes from a fee you pay them. Commission-based planners are paid by the companies whose products they sell.

6. Check credentials.

Check to see if a planner’s record is tarnished by disciplinary problems or complaints. Groups that award credentials or state agencies keep tabs on planners and can provide help.

7. Get references.

Ask a planner for two or more of his clients – then follow up and call to find out how a planner performs in specific circumstances, such as during a financial crisis.

8. Express yourself.

The quality of a planner’s advice is correlated to how well he or she knows you. Make sure a planner asks questions about your finances, goals, risk tolerance and philosophy. If they don’t ask, they probably aren’t paying adequate attention.

9. Know what they’re selling.

Find out what financial products a planner sells and how much he or his firm earns for making a sale. Be wary of planners who push one product – say, one family of mutual funds or one kind of insurance – as they may not give you the unbiased or comprehensive advice you need.

10. Know yourself.

The best planner will take his cues from you. Before you hire someone, identify the financial goals you want to meet, your assets and liabilities, your risk tolerance, and investment style. Are you self-directed or do you want specialized help?

The above post is from the CNN Money series called “Money 101.”

1. Time is on your side.

Those with more years until retirement can afford to put a greater percentage of their assets in the stock market.

2. Stocks mean risk and return.

Those with a higher tolerance for volatility should put more money in the stock market than those in the same age group who have a lower tolerance.

3. College savings funds need stocks.

Since college costs are rising faster than inflation, no other investment will keep pace as well as stocks. Invest more in stocks when your kids are young, and as they get older move more money into bonds.

4. Get professional advice.

One of the best ways to develop an effective asset allocation plan is to consult a qualified financial planner.

5. Allocation is the key to achieving your goals.

Studies have shown that asset allocation is the single most important factor in determining returns from investing.

6. Know your stock funds.

Before you set up your asset allocation plan, you must find out the nature of the companies purchased by the mutual funds you own. It’s not enough to go by the names of the funds themselves, either. In search of performance, far too many fund managers buy stocks that barely fit their portfolio’s explicit investing parameters. So your “income” fund may, in practice, contain many stocks that should be considered “growth,” or vice versa.

7. Know your bond funds.

Similarly, you must learn the same about the bond funds you own.

8. Don’t rely on software alone to build a savings plan.

Software programs might not go far enough to devise your asset-allocation plan.

9. Determine your long-term goals.

Do you want to buy a sailboat after you retire? Or pay off your mortgage so you can write a novel? Figure out what your long-term goals are, and what they will cost.

10. Get started.

It’s never too late to get started, and it’s never too late to revamp or revise an asset-allocation plan.

The above post is from the CNN Money series called “Money 101.”