I've been talking to my co-fellows about retirement plans and 401(k) plans for the past two years. When my co-fellows finally signed up last month, they didn't know what to pay attention to when selecting their funds. Naturally, they went with the default options, which were terrible. Fortunately, I found the best options for my co-fellows and got them 4% better returns annually for lower fees. It's amazing what a few clicks can change when you know what you're doing.

And they're not alone. Most people don't know which options to pick for their 401(k) plan. I didn't either until I started looking into it. I'm no expert, nor am I a financial advisor or fiduciary, but I do know a bit about these accounts. This fired me up enough to write this breakdown on how to make the most of your 401(k) plan.

To begin, let's go over the pros and cons of 401(k) plans:

The Downside

• High Fees. Fees siphon off your hard-earned money and find their way into the pockets of the fund managers. Most people don't pay much attention to their retirement accounts. This opens avenues for the people we trust with our money to take advantage of our ignorance. Additionally, those fees compound. If an average worker earns about $30,000 annually and saves 5% of this income, the worker will lose ~$154,794 in fees (about five years of income). Similarly, a worker that earns about $90,000 annually would lose $277,000 in 401(k) fees over the course of their life. It pays to pay attention.
• Fund Confusion. Picking a fund can be overwhelming – and it was designed to be overwhelming. Companies create many suboptimal funds that don't have the best track record. Faced with too many choices, it's no surprise that my co-fellows picked suboptimal funds. They didn't know any better and they didn't know how to sift through the choices provided. It'd be like a cardiologist giving an exhaustive list of tests to diagnose coronary artery disease and the patient picking CRP. The patient has no framework to deal with that kind of decision. But there is an easy way to find good funds with minimal hassle: index funds! I've written about index funds here before.

The Upside

• Employer match. In my opinion, the employer match is one of the best parts of the 401(k) and the strongest reason to stick with this retirement strategy. It is the closest thing to free money I've seen in the world of finance. Your employer will match the money that you put into your account up to a certain percentage of your income – money you wouldn't get otherwise. Best of all, all you have to do is sign up.
• Compound interest. This is one of the greatest reasons to put money into the stock market as soon as possible. The longer your money stays in these funds, the more compound interest accrues. Getting money in these funds and keeping it there for as long as possible is the only way to take advantage of the magic of compound interest.
• Loans. A little known, yet true, trick to use is to use your 401(k) as a source of a loan. There are some limitations, but this can be a source of emergency funds if needed.
• Returns of the market. If you know what you're doing, and you should, with the right funds, your returns will grow with the market. All the books I've read harp on the same investing strategy – index funds – as the way to go. Instead of searching for the needle in the haystack, just buy the whole haystack.

Retirement plans are great because they help us automatically save for retirement with pre-tax money. I've previously written about setting up systems like this to set us up for success later. The 401(k) is one of those systems. It can be riddled with problems, though. Hopefully, I've cleared up some of the confusion. We'll take a deeper dive into the nitty-gritty in a later article. For now, find the index funds in your 401(k) plan and put your money in those funds.

If you are interested in further reading, I recommend the following:

• Unshakeable by Tony Robbins and Peter Mallouk
• The Little Book of Common Sense Investing by John C. Bogle

This article was authored by Vybhav Jetty, MD, a fellow at Saint Elizabeth’s Medical Center of Boston. Twitter: @jettymd

This content was developed independently from the content developed for ACC.org. This content was not reviewed by the American College of Cardiology (ACC) for medical accuracy and the content is provided on an "as is" basis. Inclusion on ACC.org does not constitute a guarantee or endorsement by the ACC and ACC makes no warranty that the content is accurate, complete or error-free. The content is not a substitute for personalized medical advice and is not intended to be used as the sole basis for making individualized medical or health-related decisions. Statements or opinions expressed in this content reflect the views of the authors and do not reflect the official policy of ACC.