etting the most out of your 401(k) plan can mean the difference between creating the life of your dreams and just getting by. Most Americans know this. Few know what to do about it.

That's not surprising. For most Americans, a 401(k) plan is their first exposure to investing. It's a daunting one. The stakes are high. And your parents weren't much help. Assets in 401(k) plans are fast approaching $1 trillion. Yet these plans are not even one generation old.

Don't despair. Here are eight tips on how to get the most from your plan:

Where are you going in your life and in your career? Are you planning to start your own business? Do you plan on buying your dream home within the next 10 years? What about your child's college education and your own retirement? Going forward, work and retirement will not be two distinct phases of life. Instead, life will represent a series of transitions to different kinds of work. You have a lot of control over how that plays out for you. It seems that Gen-Xers have a leg up here. They're mulling over these choices all the time. The rest of us should pay attention.

But this isn't simple stuff. Top financial planners like Stan Breitbard, who teaches financial planning to MBA students at the University of California Berkeley, say few people ever do this critical part of planning. Dreaming dreams and figuring out how to spin them into reality is a tall order. Don't think of your life as a compromise. Spin out your dreams. Stretch to include everything in life that you might want. And then think of your 401(k) as your freedom fund that will help you accomplish it.

For whatever you want to accomplish, you're going to need some money. There's no better place to tuck it away than in a 401(k). When you're young, you may not have a great deal of money. But you've got something far more valuable - time. Time can turn a grain of sand into a mountain or $1,000 into a million bucks, thanks to the power of compound interest. If you can put $10,000 away when you're 25 years old and manage to earn 8 percent for 40 years, you'll have more than $200,000.

Young people hate the idea of locking up their money forever - or until age 59╜. Don't worry about that. There are a number of ways to tap into the money if you really need it. The rules allow you to withdraw for the following reasons without paying a penalty:

In addition, most plans offer loans for almost any reason. When you leave your job, you take the money with you. And many plans allow what are called "in-service withdrawals," which means you can withdraw the company matching funds and roll them into an Individual Retirement Account or even use them. So don't worry about getting the money out. Just get it in.

Employees are walking away from $6 billion a year in free 401(k) money by failing to put enough in to capture the company matching funds, according to Spectrem Group, 401(k) consultants based in San Francisco.

If your employer provides any kind of match, contribute enough to get every penny of it. This money is otherwise lost to you. Once it's in the plan, it travels with you when you change jobs. You could even use it to start your own business - if you're willing to pay tax and penalties on it. If you don't contribute, you lose it.

It used to be that employers were responsible for providing your pension. They invested in the stock market so they'd have enough to pay benefits. When employers turned over the responsibility for retirement savings to employees, they worried that employees would invest too conservatively and that they wouldn't have enough money to retire.

It's a legitimate concern. Most Americans are scared of the stock market. There are complex reasons for this. Economists who study behavioral finance tell us, for example, that people feel more pain from a loss than pleasure from a gain. We suffer from regret when an investment we buy loses value. We feel stupid. We panic. Worst of all, we bail out.

Professor Richard Thaler, a behavioral economist at the University of Chicago, says that his ideal investor is Rip Van Winkle. He invests in stocks. He goes to sleep for 20 years. And then he wakes up a rich man. Try to remember that when you invest in your 401(k) plan. Don't be trigger-happy. Invest in stocks and sit tight.

Asset allocation - or selecting the right mix of asset classes, such as international stocks, small-company stocks, large-company stocks and bonds - is the key to successful investing. Combining different asset classes allows you to include assets that seem risky by themselves - such as small stocks or emerging markets - and still create a portfolio that has low volatility because of the way these assets offset each other.

When you're investing for retirement, stocks should represent the bulk of your portfolio - up to 75 percent or 80 percent. But not all that money should be in the same fund. Divvy it up like this: 40 percent in large-company U.S. stocks, like an index fund, 20 percent in small U.S. companies and 15 percent in an international fund. If your plan has a good emerging market fund, you might even put a token amount there. For the other 25 percent, you might put 10 percent in a bond fund, 5 percent in cash - or a money market fund - and the rest in a hedge fund like a natural resources fund, a real estate fund or an energy fund.

You already have your livelihood tied up with your employer, who pays your salary and offers you benefits. You don't want your retirement tied to the fate of the same company. Think of what happened to employees at IBM in the early to mid-90s. Here was a company that prided itself on never laying off an employee. And its stock was golden. Thousands of employees were forced out of Big Blue at the same time the stock hit the skids.

Tax-advantaged investments such as life insurance, annuities and municipal bonds have no place in a retirement plan either.

One of the keys to investment success is to avoid second-guessing yourself, to stick with the asset allocation you've made no matter what happens in the markets. However, your asset allocation will grow out of balance simply because of the cycles in the investment market. That's when you need to do some pruning.

Pick a date once a year and do it. This can be the toughest part. Cutting back your winners seems counterintuitive. And buying your losers can be downright scary. Consider this example that's probably happened to quite a few investors. Suppose, just for purposes of illustration, that at the beginning of 1997 you had half your money in U.S. stocks and half in emerging markets. By the end of the year, your portfolio would be 58 percent U.S. stocks and 42 percent in emerging markets. Since the stock market rose more than emerging markets, your portfolio is now out of whack.

What rebalancing means is that you trim back your U.S. stocks to 50 percent and add to your emerging markets allocation. Rebalancing - if it's done rigorously and unemotionally - helps you to do what all investors want to do: buy low and sell high. It encourages making contrarian plays because you're selling the investments that have done well and buying those that have done poorly.

If there is a negative to 401(k) plans, it's this: They cost too much. Check the fees to make certain yours doesn't.

Most employers want to offer good plans. They want you to participate and they want you to invest wisely. If you need help or if you have complaints about investment choices or expenses, talk with your employer.