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No retirement savings plan for now

Question: I just graduated from law school and found the perfect job for me. Unfortunately, it does not offer a 401(k). I have a number of old 401(k)s from previous jobs, including a few that have been rolled over into Roth IRAs. Because I was in school for 3 years, I haven't been adding to my retirement saving for that period, thinking I could "make it up." To top it all off, my husband and I now make in excess of the maximum for IRA contributions. How should I be saving for retirement at this point? Jane, Los Angeles, CA

Answer: Congratulations on graduating from law school, and better yet, getting the job you wanted. That's terrific.

There is no income limit with a traditional IRA if your husband isn't covered by a retirement plan at work. You could put aside a maximum of $5,000 for 2012. Of course, if your husband does have a plan at work, it won't help you, and I have a feeling from your question that that's the case.

One thing I would consider is saving a lot of money, but in taxable accounts.You'll pay taxes on dividends, realized capital gains and interest payments along the way. The big advantage of creating a long-term savings portfolio in taxable accounts is flexibility.You can tap into the accounts without penalty. You'll pay Uncle Sam a long-term capital gains tax rate when you cash it in -- assuming you've owned the investment for more than a year -- but it's still at a lower rate than ordinary income tax rates. Like a 401(k), I would set it up so the money goes automatically into the accounts.

Another benefit to investing in taxable accounts is tax diversification. For instance, in retirement, it may be a tax-smart move to leave tax-sheltered savings alone and tap into taxable accounts, and vice versa. The good news is that you get to choose.

Another reason for going this route is that the money is available to fund other transitions besides retirement, from voluntarily downsizing to part-time work to moving to another job and city for a few years to starting a long-dreamed-of non-profit organization.

You can mentally label the accounts "retirement" or "long-term" money. You can invest in a well-diversified portfolio, including low-cost equity and bond index funds. I would also lobby at your new place of work for a retirement savings plan.

About the author

Chris Farrell is the economics editor of Marketplace Money.
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