As you go through your new hire package you read about company policies, fill out the direct deposit form, and complete your tax withholding elections so the government can carve a slice out of your paycheck.

You pick up the folder that explains your company's benefits and you read something about a "401k plan". You stop and think to yourself, "What is a 401k plan?"

In simple terms, a 401k plan lets you put money away for your retirement. Think of it as the modern day version of a pension. The old-school pension plans of our fathers and grandfathers are all but extinct, but in there place we have the 401k.

You should treat your 401k as if your future hopes of retirement depend on it. Because they do. Traditional pensions are going the way of the dinosaurs, and you can't expect to get much (if anything) from Social Security. The responsibility for your retirement savings falls squarely on your shoulders, so you'd better know what you are doing.

Let's talk about some of the basic concepts and terms you need to understand about your 401k:

• When you enroll in your 401k plan, you elect to have a percentage of your salary deducted from each paycheck and deposited into a special account. You are then able to invest that money in a number of mutual funds, and both your contributions and earnings grow on a tax-deferred basis. That means that you won't be taxed on anything until you withdraw the money from your 401k account.

• Speaking of withdrawals, you should know that borrowing from a 401k can be difficult and costly. You can take your money out, but it will cost you. You can borrow money from your 401k by taking out a loan, then paying it back plus interest. Or you may be able to make a withdrawal which does not have to be paid back. Withdrawals are considered taxable income. Plus, if you are under age 59 1/2 you'll have to pay an additional 10% penalty.

• If you are lucky you work for a company that matches part of your contributions. That's a very valuable benefit because it will help your balance grow a lot faster. For example, say your company matches 50% of the first 6% you contribute. If you contribute $100, they'll kick in another $50 which means your account grows by $150. If your company offers a match, take advantage of it.

• 401k plans are portable, which means if you leave the company you can take it with you. You can roll your account into a 401k with your new employer, or you can transfer it into an IRA. Either way, you won't have to pay any taxes if you roll your balance over.

Now you should be able to answer the question "what is a 401k plan?" But there are many pitfalls on the road to retirement.

Discover the 5 biggest mistakes you can make with your 401k and how to avoid them at http://www.mikesmoneytips.com/401k-mistakes.php