by JQ Adams

Created on: January 21, 2009

Recent studies have found that half of all Americans have not saved a dime for retirement, and of the half that did, a quarter of them only have enough money to pay for a years worth of retirement! Social Security just isn't enough to pay for our living expenses during retirement years, so it's time for us to step us as a nation and take hold of our future. It's time for us to live on less than we make and put money away for the future. It sounds well and good in practice, but what if you don't have a retirement plan available to you at work?

Federal Law permits anyone making under $114,000 (or $166,000 a year if you're married) a year to invest a certain amount of money into a special type of investment account known as a Roth IRA. You will never have to pay a dime in capital gains or dividend taxes on the money you put inside of your Roth IRA, meaning that it will be able to grow much faster than if you were to put it into a taxable account. For 2007, you will be able to invest up to $4,000 into your Roth IRA and in 2008 you'll be able to invest up to $5,000. After that the amount you can invest will increase in $500 increments every year.

Most financial advisor will recommend that you put at least 15% of your income away for retirement, and if you make more than $26,500 a year, you're going to want to put in more money than your Roth IRA will allow. At this point, the number of tax beneficial options you have really start to dwindle, but there are still some things you can do.

If you have any sort of small business or self employed plans, you can invest inside a Simplified Employee Pension (SEP) plan or a Solo 401(k). You can deposit up to 20% of your business's revenues or a maximum of $45,000 a year into a SEP plan. With a solo 401(k) plan, you'll be able to deposit $15,500. It's probably worth while to sit down with a fee-only financial planner to help you get started with either of these two options.

If you don't have any self employment income and have already maxed out your Roth IRA, you can start looking at what are called tax-managed mutual funds. They're essentially mutual funds which invest into bonds and the stock market and are designed to minimize the amount of taxes you have to pay. You'll essentially pay zero tax until you decide to sell your investments then will have to pay the 15% capital gains tax on the amount of money that your investment earns for you. It's not a great a deal as putting your money inside a retirement plan, but it's better than paying taxes every year on your investments.

Just because you don't have a 401(k) plan at work doesn't mean that you can't prepare for retirement, there are plenty of options to help you put money away on a tax-advantageous basis.

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