Latonda Henderson has been contributing to her 401(k) ever since she finished college and began working at a company that offered a deferred contribution plan. Since age 22, "I've been participating in a 401(k) plan. My father told me to start now and that's what I did.†More than a decade later, Latonda, 35, and her husband, Kevin Henderson, 36, both continue to regularly place a portion of their salaries in their respective 401(k) plans. "Our contributions are automatic,†says Latonda. The Hendersons, who both work for multinational consulting firms, each put 6% of their annual income in their 401(k)s, which are valued around "the mid-six-figure range†combined. With two children, ages 5 and 2, the couple knows they now have tuition payments to consider, requiring investments and savings outside of their retirement accounts. Though commendable, the Hendersons' financial habits are not universal. A new study from the Ariel Education Initiative and Aon Hewitt, 401(k) Plans in Living Color, revealed that just two-thirds of Hispanics and 68% of African Americans contributed to 401(k) plans in 2010, while 79% of whites and 80% of Asian workers participated in such vehicles. "This is a crucial issue,†says Robin A. Young, a certified financial planner and president of Women Behaving Wealthy, a financial services firm in New York. "With fewer pensions and longer life expectancies today, it's imperative that individuals prepare themselves financially for retirement.†The study also reported the prolonged economic crisis and resulting financial challenges led many employees to tap into retirement savings. More than two-thirds of workers who took a withdrawal in 2010 reported they needed the money for an unexpected emergency, debt, or day-to-day living expenses. African Americans and Hispanics took more hardship withdrawals and loans from 401(k) plans than their white counterparts. In the Great Recession, African American and Hispanic workers have been hit the hardest and were laid off in greater numbers, says Mellody Hobson, president of Chicago-based Ariel Investments L.L.C. (No. 6 on the be asset managers list with $5.47 billion in assets under management). "As a result, we have decimated our retirement plans.†Anyone who took out a hardship withdrawal, cashed out after losing a job, or borrowed against his or her 401(k) must now claw back that money to get on firmer financial footing, Hobson says. "You need to make a very concerted effort to double down; increase your level of savings; look to cut back on expenses.†It is imperative you continue to sock away money, adds Hobson, since Social Security will be a modest contributor and 401(k) plans have become the primary way Americans save for their golden years. Anyone who took out a hardship withdrawal, cashed out after losing a job, or borrowed against his or her 401(k) must now claw back that money to get on firmer financial footing, Hobson says. "You need to make a very concerted effort to double down; increase your level of savings; look to cut back on expenses.†It is imperative you continue to sock away money, adds Hobson, since Social Security will be a modest contributor and 401(k) plans have become the primary way Americans save for their golden years. Get in the game and stay there. Keep contributing to your 401(k) plan even when the news is all about a declining stock market. When others panic, you should still stick with your 401(k) investments. "We were nervous about our investments back in 2008 and 2009,†Latonda recalls, "but we kept up our 401(k) contributions and now we're glad we did.†According to Chicago-based research firm Morningstar Inc., domestic equity funds gained an impressive 24.08% a year from the end of the first quarter of 2009 through the first quarter of 2012, on average, while taxable bond funds also posted double-digit annualized returns. (Continued on next page) Try to max out your contributions. In 2012, you can contribute as much as $17,000 to a 401(k). If you're turning 50 or older by year's end, the maximum contribution is $22,500. Those limits also apply to similar 403(b) and 457 plans. Even if you can't afford to contribute the maximum, boosting your salary deferrals by small amounts can have a large payoff. "I advise people to increase their contribution by one percentage point,†says Young. "If you are currently contributing 6% of pay, for example, make that 7%. You probably won't miss the money, especially when you consider you'll save more in taxes when you increase your contribution.†At the minimum, you should contribute at least enough to get the full company match every year, according to Richard Peace, a certified financial planner in Colorado Springs, Colorado "If your company is matching up to 6% of pay,†he says, "contribute at least 6% of pay to your 401(k). If you don't, you're giving up a 100% return on your money. †Diversify your investments. "A key part of our strategy,†says Kevin "is to hold different types of assets in our 401(k) plans.†The couple's holdings include fixed-income, stock, and international funds. When the stock market crashed in 2008 and 2009, bonds held up better than stocks, so the overall result wasn't as bad as it was for other investors. Maintaining their 401(k) participation helped them enjoy the bull market of the past three years. "By adding fixed income and limiting your exposure to stocks,†says Young, "you decrease the volatility of your overall investments. The greater your risk tolerance, the more you can invest in stocks. The lower your risk tolerance, the more you should add bonds to your 401(k) portfolio. Adds Peace: "Don't overload on company stock. That can be a tragic mistake. If things go south at your company, you stand to lose not only your job, but also the 401(k) money you've invested in your employer's stock. "Ideally you don't want to have more than 5% of your portfolio in company stock,†says Young. "However, because company stock can be a part of compensation, it can be higher, but it should not be more than 15% to 20% of your total portfolio.†(Continued on next page) Don't dip into your 401(k). You should leave money in your 401(k) to grow tax-deferred until you stop working and draw funds from the account to replace earned income. "It's not your emergency fund,†says Dail St. Claire, president of New York-based Williams Capital Management (No. 13 on the be asset managers list with $2.4 billion in assets under management). Having an emergency fund that consists of at least six months worth of living expenses covered in liquid assets is critical as you're investing alongside your retirement, St. Claire adds. The Ariel—Aon Hewitt study also found that African Americans and Hispanics were much more likely to cash out their 401(k) accounts when leaving a job. Such maneuvers often led to costly taxes and penalties; they also impair your ability to build long term, tax-deferred wealth.