Like IRAs (and other types of retirement plans), 401(k)s are protected from creditors in bankruptcy court. Since they are governed by federal law, they also enjoy a bit more protection from creditors if you don't file bankruptcy. IRAs fall under state law, and each state has slightly different rules governing how or when creditors can access your retirement funds, says Choate.

Since your employer sets up the plan, you're limited to whatever vehicles the company selects. "Its weakness is the lack of the right asset classes," says Paul Merriman, author of "Live It Up without Outliving Your Money!" His solution: Balance it with the investments in your IRA.

Employer matching often depends on a vesting schedule, so if you don't stay for a certain number of years, you can't keep all the money your employer put in your account, says Foster.

Another drawback of an employer-sponsored plan: The company sets the rules. So not all 401(k) plans are created equal. While 401(k)s can be very flexible, individual companies can make them more restrictive, especially when it comes to borrowing money or making payments to heirs.

Once you put money into a 401(k), it's difficult to get it out prior to retirement. Some company plans will allow you to borrow from yourself. But should you borrow and then lose your job, you've got a short amount of time to repay the debt.

When you retire and start taking out money, it's taxed as income.

If you're married, federal law mandates your spouse must be your beneficiary. If you want to leave this money to children or another family member, you have to get spousal consent.

SIMPLE IRAs
If you work for a smaller company, it might offer what is known as a SIMPLE, or Savings Incentive Match Plan for Employees, IRA. A SIMPLE IRA also can be a good option for self-employed individuals, says Foster.

With a SIMPLE, the employer will match some of your contributions following one of several formulas. Like a 401(k), you set up contributions to come out of your income before you see the check and receive an annual tax deduction. The money is taxed as income when you take it out of the account at retirement.

Unlike a 401(k), there is no vesting schedule for employer matching. Any employer contribution "is yours immediately," says Foster. "You could literally quit the next day and get it all."

With a SIMPLE, an employee can contribute up to $10,000 in 2006 ($10,500 in 2007) annually in addition to any employer matching, says Foster. An additional $2,500 catch-up contribution is allowed for those over 50.

Unlike a Roth IRA, you can't pull your contributions out any time you want. SIMPLEs carry the same penalties for early withdrawals as traditional IRAs, unless the money is for a qualifying event. And if you need to tap the account in the first two years, the penalty is 25 percent.

As with a company-sponsored 401(k), you're limited to the investment vehicles that come with the plan your employer selects.

Since employers can use one of several matching strategies, you need to understand exactly which formula your company is using. And remember: Employers can change formulas annually if they wish.