These company sponsored plans have come under fire in recent years because they have not managed to replace the income that was previously available to most retirees from traditional pensions. But you have to save somewhere. A 401(k) allows you to set aside pre-tax money and get a matching benefit from your employer. This money will grow tax deferred until you retire, at which point you will pay tax on your withdrawals. Contribute enough to get the full company match. Any additional savings should be directed to a Roth IRA, which allows you to save after-tax money that then grows tax-free for life. Also, make sure you are well diversified among stocks (domestic and foreign) and bonds.