Your 5-minute guide to retirement savings

Keep your mitts off the money

Never cash out your 401(k) when you change jobs. You'll pay taxes and penalties and deprive yourself of future earnings on the money. Roll it over to an IRA or your new employer's plan, or, if possible, consider leaving it where it is. (See "Leaving a job? What about that 401(k)?")

• 401(k)s between $1,000 and $5,000 will be automatically rolled over to an IRA when the worker leaves a job unless the worker makes other arrangements.

• Make sure any rollover is direct and is completed within 60 days to avoid taxes and penalties.

• Resist the temptation to borrow from your 401(k). Not only will you reduce its earnings, you'll immediately have to repay the loan or face taxes and penalties if you lose your job.

• If you absolutely must borrow, some employers have begun to offer 401(k) debit cards that take away some of the risks. (See "A 401(k) debit card? It's not so bad.")

Move to the next level

If your employer doesn't offer a plan, the most common options for retirement savings are the traditional and Roth IRAs. IRAs are worth exploring even if you've taken full advantage of your employer's plan.

• Look into high-yield bonds or commodities that may not be offered for your 401(k).

• Timing is everything. You could make an additional $40,000 over 30 years if you deposit $4,000 in your IRA at the beginning of each tax year rather than the end.

• Converting a traditional IRA to a Roth to get those tax-free payouts comes with costs: You'll have to pay taxes on your pretax contributions and earnings. You can stretch out the conversion over time to reduce the immediate tax bite. Use MSN Money's Roth IRA Calculator to decide whether converting is a good idea. (See "Why you need a Roth IRA.")

You've maxed out your contributions to a 401(k) and IRA, and you still have money to invest?

• Index funds have lower fees and generally outperform actively managed funds in the long run.

• Think about tax consequences when investing in non-tax-advantaged funds. Good bets for a favorable tax rate include stocks, index mutual funds and tax-efficient mutual funds. (See "5 ways to be a tax-smart investor.")

• Variable annuities are an unattractive savings method for multiple reasons, including high fees and tax treatment. (See "The worst retirement investment you can make.")

If you're among the declining number of people who have a traditional pension but you don't know how to access it, the Pension Benefit Guaranty Corp. can help you. (See "Track down your long-lost pension money.") The National Registry of Unclaimed Retirement Benefits can help you find 401(k)s.

Published July 30, 2008

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