Q: I both work for an employer who offers a non-matching 401(k) and have my own S-corporation for a fitness business I have on the side. When it comes to putting away retirement funds, how shall I do it? What retirement contribution limits do I have with a Roth IRA? I don’t currently have a Roth IRA and am 61 years old with no current retirement fund. Thanks for your help and advice in advance.

A: When it comes to retirement funding, you need to decide whether you want to put money away for retirement before paying federal income taxes or after. In your employer’s retirement plan, you will put away money before federal income taxes and in the Roth IRA, you would put money away for retirement after paying federal income taxes.

When you say you don’t have a retirement account, does that mean you aren’t covered by any pension or other employer sponsored retirement plan? Do you know how much retirement money you will get from Social Security? Knowing these retirement numbers and information can assist you in making some of the retirement choices you are confronting.

If you are trying to maximize the ability to build your retirement nest, your best bet might be to put as much money as you can into a retirement account before paying federal income taxes, particularly if you are impacted by a higher tax bracket or the AMT (Alternative Minimum Tax). If you have $1,000 to invest today for retirement and put that money into a retirement account before it’s taxed, you will invest $1,000 and that money can grow in the retirement account depending on your investment strategy for retirement. The retirement money would be taxed when you take it out when you retire at your federal income tax rate that may apply some years down the line.

If you have that same $1,000, but pay tax on it at a rate of 25 percent, you would only have $750 to invest for retirement to grow over the next several years but you would be able to take the retirement money out tax free.

Depending on when you plan to retire and withdraw the money and what you think federal income tax rates will be in the future when you are retired, could also impact your decision.

So, it’s not just as simple as picking one or the other plan for retirement. You need to review what your current tax situation is and what you think your tax situation will be when you decide to take out the money for retirement.

It may be nice to have money in both types of retirement accounts giving you the option to delay paying taxes on one type of retirement account but knowing you can take money out of the other retirement account without having to pay federal income taxes.

As a final thought if you find that you don’t have enough retirement money in a pension plan and won’t have enough money to retire at age 65 or 67, you may decide to stay on working as long as you are able to.

Finally, the limits for retirement plan contributions differ. You may only be able to contribute $15,000 towards your employer 401(k) retirement plan but may have the option of setting up a 401(k) retirement plan with your business to contribute additional money for retirement if you wish or have the ability to contribute more.

As far as a Roth IRA for retirement is concerned, if your current income (adjusted gross income shown on your federal income tax return) is high ($101,000 if you are single, or $159,000 if you are married), you may not be able to contribute to a Roth IRA for retirement, otherwise your limit for 2008 is $6,000.

June 26, 2008