Retirement savings alternatives to Roth IRA and 401(k) Oct 28 2011

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Beyond IRAs and 401(k)s: retirement saving options

By Updegrave November 3, 2011: AM ET

NEW YORK (CNNMoney) — My company doesn’t offer a I invest the max in a Roth IRA, but I that won’t provide for retirement. I’d like to another $5,000 a year some sort of retirement What options do I have? Daniel J. St. Paul, Minn.

I the IRS’s recent announcement the maximum 401(k) contribution has boosted to $17,000 (or $22,500 if over 50 and are eligible to contribute the catch-up) for 2012 is great if you’re in a plan that you to sock away the max.

But if you have access to a 401(k) or you’re in a plan that a lower limit — you may be to save anything close to the max on a basis, even if you have the to do so.

What to do with $1,000 now

all, the other go-to vehicle, the good old IRA, you to contribute only up to $5,000 a $1,000 catch-up). And that hasn’t budged since

Given the need to boost savings in this country, sort of disparity makes no to me. But that’s not an issue I have any over. You’ll have it up with the folks in Congress who set the for retirement plans.

What I can though, are some ways you may be to make the best of this situation.

First, two quick Are you married? If so, make sure your spouse is also out a traditional or Roth IRA.

The your wife can contribute on a number of factors, including she’s covered by a pension and how much you both earn. But at the least, she should be able to do a IRA, which can then be to a Roth IRA. This can help you determine the maximum IRA contribution for this year you’re single or married.

Second question: Does any of income qualify as self-employment say, from a business you own or contracting or freelance work?

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If so, you may able to contribute up to $49,000 year ($50,000 in 2012) to a or solo 401(k) plan.

as I explained in an earlier column, a 401(k) can give you an even chance to put away big bucks as you may be to contribute both as a business and an employee.

If you answered no to these two however, then your shot at leveraging your effort is to give up as little as to the tax man by opting for tax-efficient investments. these are investments that ongoing taxable distributions and most of their return in the of unrealized capital gains.

America’s new financial values

you won’t get the same tax breaks are available in 401(k)s, IRAs and the But by holding such investments for than a year, you increase the that most of your will be taxed at the long-term gains rate, which tops out at 15% vs. 35% for interest and short-term gains. In effect, you can create own tax-shelter by letting your compound for the long-term with drag from taxes.

So sort of investments am I talking here?

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To start with, mutual funds. which are that use techniques like gains and losses or selling shares in order to hold net realized gains and taxable Index funds, such as the listed on our MONEY 70 list of funds, also tend to be tax efficient because they buy and the stocks of a benchmark, rather trade frenetically in an attempt to the market (a strategy that, if it works, can reduce tax efficiency by more frequent taxable

And then there are ETFs, or funds. The fact that ETFs are index funds trade like stocks on an makes them inherently tax But they also have a method for creating and redeeming that can make them more tax friendly than index funds.

Actively-managed funds can also be relatively as is sometimes the case with funds run by managers who keep turnover down. But even low doesn’t necessarily assure a tax tab.

The best way to tell how of a fund’s return is going the taxman’s pocket rather yours is to check its tax-cost which you can find by plugging the name or ticker symbol Morningstar’s quote box and then on the Tax tab.

Two other types of investments are touted for their tax benefits, but not so keen on them. Variable for example, do have the advantage of you to avoid paying taxes on gains as long as those remain within the annuity.

But I two quibbles with VAs: they often come onerous fees that can up a good portion of your expenses. Second, all gains are taxed at ordinary income Which means you may be converting gains that would be taxed at no more than 15% gains taxed as high as (Yes, that’s also of 401(k)s and traditional IRAs, but have other advantages compensate for that drawback.)

The investment that’s often as a tax-friendly retirement vehicle is universal life insurance. But as I in a recent column. these also have lofty and a number of other downsides make them an inferior for retirement savings.

Who knows? Maybe Congress come to its senses and pass legislation that gives without 401(k)s access to tax-advantaged savings vehicles.

In the though, you’ll just to make the most out of the options are out there.

First Published: 28, 2011: 12:52 PM ET

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