Have a k plan at the office?

Is there employer matching? Think of it this way: The federal government puts a lid on the tax-advantaged salary reduction amount you can contribute to your k. So, if you still have money you want to save after filling up your k , our research shows that you should follow this pattern:.

Then, if you want to save even more than that, make whatever unmatched contributions you are allowed to your k. That entails holding your stocks for more than 12 months — longer, if possible — and choosing mutual funds with a low annual turnover the rate at which the fund manager buys and sells holdings.

Since the tax law strongly encourages funds to distribute all gains from selling stocks to their investors, the higher the turnover rate, the bigger the annual taxable distribution other things being equal, and that distribution may be taxed at higher federal rates up to Unlike a deductible IRA, anyone with earned income from a job or self-employment can open one.

And since these accounts grow tax deferred, if you have a long investment horizon, the tax-savings can be significant. That said, withdrawals are taxed as ordinary income, rather than at the lower long-term capital-gains rates applied to taxable accounts.

I say forget them. Their relatively high expenses often overwhelm the tax-deferral advantage of these contracts. Variable annuities make sense only for a fixed-income asset such as bonds or cash, and only if you are saving for many years.

In that case, the gains from compounding your interest free of any current tax hit may eventually outweigh the drag created by higher fees. The exact number of years necessary to come out ahead depends on your tax bracket and the income yield from your investments.

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