Saving for retirement without a 401(k)

Question: The company I work for has no 401k retirement plan, and has no interest in starting one. I want to save for retirement, but what are my options? I want to put away as much as possible but it seems like my only choice is an IRA. Any ideas? Michael, Chicago, IL

Answer: I would take a two-step approach to savings. First, I would take full advantage of an IRA--Roth or traditional. You can contribute a maximum of $5,000 ($6,000 if 50 and over.) I tend to prefer the Roth over the traditional IRA because of the advantages of tax-free withdrawals in retirement and its estate planning flexibility.

Second, I would supplement the money invested in the IRA with a diversified portfolio of investments in taxable accounts. (This is in addition to your emergency savings, which is parked in an online savings bank, a credit union, and similar safe, short-term investments.)

I would arrange it so that money is automatically withdrawn from your checking account every month or every two weeks into several low-fee broad-based equity and bond funds.

Of course, you'll pay taxes on any realized capital gains, dividends and interest. But you can always tap the money before retirement without paying a penalty. You will owe long-term capital gains when you cash in any securities. Still, the money will be there for you to tap in your elder years.

About the author

Chris Farrell is the economics editor of Marketplace Money.

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