NEW YORK (CNN/Money) - I currently contribute 5 percent of my salary to my company 401(k) plan, enough to get the maximum match from my employer. I don't contribute more because our plan has investing options like "Aggressive Lifestyle" and "Moderate Lifestyle," and I'm not sure how the money that goes into such options is actually invested.

I also don't like the fact that half of my employer's match goes into my company's stock. So for now I'm putting my other savings in index mutual funds. Do you think I'm making the right decision, or am I making a mistake by not contributing more to my 401(k)?

-- Tim M., Oakland, Rhode Island

I'm generally in favor of people plowing all the money they can into their 401(k) simply because it's an easy way to save for retirement. Without the convenience of having money automatically deducted from their paycheck and invested in a 401(k), I suspect many people wouldn't get around to saving at all -- or would save much less.

But your question illustrates some of the unfortunate drawbacks to tying our retirement savings plan to an employer.

First, the employer might not offer a great roster of investing choices, or may not adequately explain just what each of these options actually does or how much it costs. As you note, there's also the issue of the match. Even after the Enron debacle, many firms still limit their match to company stock, which can make for a more concentrated portfolio that can magnify risk.

And while I can't tell whether this is a problem in your case, the fact is that the employer sets the maximum percentage of salary one can invest (and the match percentage). So if you happen to work for a company that sets a low contribution or offers a lousy match, you're, well, not in as good a position as someone with a better 401(k) plan.

But unless you move to another company with a more generous plan (which you shouldn't totally dismiss as an option), you've got to make the best of what you've got. Here's what I recommend.

First, go to the investment firm that manages the various investing options of your 401(k) and get a detailed explanation of just how the assets in these various lifestyle funds are invested.

The term "lifestyle" usually means the money is apportioned between stocks and bonds according to one's age or risk tolerance. For example, an aggressive fund might have, say, 80 percent of its assets in stocks and 20 percent in bonds vs. 60 percent stocks and 40 percent bonds for a moderate fund.

The theory is that a young investor with a very long time horizon can tolerate short-term volatility and thus should take a more aggressive stance than a someone later in his or her career who prefers a less flighty portfolio and thus a more moderate allocation toward stocks. But the fact is that terms like "aggressive" and "moderate" aren't very exact and the stocks-bond mix will vary from company to company.

If the investment firm can't provide you with specific information such as how the funds' assets are split among various types of stocks and bonds and what percentage of assets are deducted for annual expenses, go to your company's personnel or human resources department. One way or another, though, you've got to get a better handle on how these funds are managed.

On the question of the match, you want to find out whether you have the freedom to move the money out of company stock into another option and, if so, whether there's a restriction on your ability to do so.

For many years, companies that matched in company stock prohibited employees from moving out of that stock until they were very close to retirement age. Because of the huge outcry in the wake of the Enron collapse, however, many companies have begun loosening their restrictions. So find out the situation in your plan.

Ideally, you'll be able to move your money after a relatively short waiting period, in which case I'd advise periodically reducing your company stock stash so it never reaches more than 10 percent of your overall holdings. In fact, you might even consider holding less than that percentage, if possible.

If you can't move money from the company stock option, however, I wouldn't let that fact alone dissuade me from contributing to the 401(k). After all, the match is extra money the company is throwing in on top of your contribution. So it's kind of like a freebie. You naturally want this money to earn a competitive rate of return. But if it doesn't, you're really no worse off than if you hadn't gotten a match at all.

Now let's move on to the issue of investing in your 401(k) vs. outside the 401(k). A 401(k) provides you with a pot of money on which taxes have been deferred. Which means you'll pay taxes on that money when you eventually withdraw it at retirement. Basically, you're paying back the IRS for the fact that your 401(k) contributions -- as well as the investment earnings on those contributions -- escaped taxation for years and years.

But I think it's a good idea also to have a pot of money available in retirement that won't be taxed at all. And the way to create that pot of money is to contribute to a Roth IRA. You won't get an immediate deduction for your Roth contribution; you'll contribute after-tax dollars. But when you pull the money out, your contributions and your earnings are tax-free.

What this does is give you a bit of a hedge in the event Congress raises tax rates in the future. If all your retirement savings comes from a 401(k), it will all be subject to those higher rates. The Roth money won't be affected, however.

I call this strategy of creating different baskets of money with different tax treatment "tax diversification," and you can learn more about it by clicking here.

So, as a practical matter, what I'm suggesting you do is continue your practice of contributing enough to get the full match on your 401(k). After that, I suggest you next invest money in a Roth IRA. (For details on how much you can contribute to a Roth, click here.

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If you can save still more, then I'd continue contributing to the 401(k) until I reach the max there (assuming you can find out what's actually in those funds). After that, I'd put any additional savings in the index funds you mentioned and perhaps even consider tax-managed mutual funds.

The idea here is to diversify your future tax exposure even further by creating a third pot of savings consisting largely of assets that will be taxed at the generally long-term capital gains tax rates.

So get the skinny on those lifestyle funds, find out how much flexibility you have in moving out of that company match and then consider adding a Roth IRA to your retirement savings lineup. And after that? Continue to save, save, save!

Walter Updegrave is a senior editor at MONEY Magazine and is the author of "We're Not in Kansas Anymore: Strategies for Retiring Rich in a Totally Changed World."