When saving for retirement, it is a good idea to put as much of your money as possible into "tax-deferred investment vehicles." These include IRAs and 401(k) plans. With these, the interest you earn goes right back into the account. You don't have to pay tax on it every year like you would with a standard bank savings account. So, you increase both your investment and your return. (Once you retire, you will be taxed on the money as you withdraw it, except with a Roth IRA if you meet the conditions. But since your overall income will likely be less than it was when you were working, you'll probably be in a lower tax bracket.)

It's not surprising that the federal government puts limits on how much money you can invest this way. After all, the government needs to collect taxes in order to pay its bills.

You are limited to $2,000 in contributions to your traditional and/or Roth IRA(s). If you have more than one IRA, your total contributions to all of them may not exceed $2,000 in any given year.

For a 401(k) plan, the 2000 pre-tax contribution limit is $10,500 or 20% of salary, whichever is less. (The limit was $10,000 in 1999.) Your employer may set further limits, due to regulations governing contributions for all employees.

If you do not participate in an employer-sponsored retirement plan like a 401(k), you can deduct your entire contribution to a traditional IRA. In effect, you can get the same tax-free savings growth that you would get from a 401(k) plan.

If you are a participant in a 401(k) or other employer-sponsored retirement plan, your contributions to a traditional IRA may not be deductible. It depends on how much you earn. In 1999, if you are single and earn under $31,000, you may deduct your entire contribution. The deduction is phased out if you earn between $31,000 and $41,000. If you earn more than $41,000, you cannot take a deduction. For 2000, the phaseout range is $32,000-$42,000. If you are married filing jointly the limit for 1999 is $51,000-$61,000, and for 2000 it is $52,000-$62,000.

If you've contributed all you can to an IRA and are looking for another tax-deferred investment vehicle, you could consider a variable annuity. This is a hybrid life insurance/investment product, in which your insurance premium is applied to investments.

Variable annuities should be considered last-choice tax-deferred investment vehicles, for several reasons. First of all, an annuity is an expensive investment because it charges an annual insurance and mortality fee. As we discussed earlier, any fee you pay on an investment vehicle is a de facto reduction in your return. Additionally, most annuities don't offer very flexible investment options and investors have little ability to switch among investments. Unlike an IRA, which generally offers a range of possible investments, an annuity pretty much locks you into a fund choice -- except for the tax advantage, it's like buying into a single mutual fund. But if you're at the stage of considering a variable annuity, you're doing very well in the tax-deferred investing game.

When saving for retirement, it is a good idea to put as much of your money as possible into "tax-deferred investment vehicles." These include IRAs and 401(k) plans. With these, the interest you earn goes right back into the account. You don't have to pay tax on it every year like you would with a standard bank savings account. So, you increase both your investment and your return. (Once you retire, you will be taxed on the money as you withdraw it, except with a Roth IRA if you meet the conditions. But since your overall income will likely be less than it was when you were working, you'll probably be in a lower tax bracket.)

It's not surprising that the federal government puts limits on how much money you can invest this way. After all, the government needs to collect taxes in order to pay its bills.

You are limited to $2,000 in contributions to your traditional and/or Roth IRA(s). If you have more than one IRA, your total contributions to all of them may not exceed $2,000 in any given year.

For a 401(k) plan, the 2000 pre-tax contribution limit is $10,500 or 20% of salary, whichever is less. (The limit was $10,000 in 1999.) Your employer may set further limits, due to regulations governing contributions for all employees.

If you do not participate in an employer-sponsored retirement plan like a 401(k), you can deduct your entire contribution to a traditional IRA. In effect, you can get the same tax-free savings growth that you would get from a 401(k) plan.

If you are a participant in a 401(k) or other employer-sponsored retirement plan, your contributions to a traditional IRA may not be deductible. It depends on how much you earn. In 1999, if you are single and earn under $31,000, you may deduct your entire contribution. The deduction is phased out if you earn between $31,000 and $41,000. If you earn more than $41,000, you cannot take a deduction. For 2000, the phaseout range is $32,000-$42,000. If you are married filing jointly the limit for 1999 is $51,000-$61,000, and for 2000 it is $52,000-$62,000.

If you've contributed all you can to an IRA and are looking for another tax-deferred investment vehicle, you could consider a variable annuity. This is a hybrid life insurance/investment product, in which your insurance premium is applied to investments.

Variable annuities should be considered last-choice tax-deferred investment vehicles, for several reasons. First of all, an annuity is an expensive investment because it charges an annual insurance and mortality fee. As we discussed earlier, any fee you pay on an investment vehicle is a de facto reduction in your return. Additionally, most annuities don't offer very flexible investment options and investors have little ability to switch among investments. Unlike an IRA, which generally offers a range of possible investments, an annuity pretty much locks you into a fund choice -- except for the tax advantage, it's like buying into a single mutual fund. But if you're at the stage of considering a variable annuity, you're doing very well in the tax-deferred investing game.