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No 401(k)? No problem
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September 12, 2000: 10:48 a.m. ET
If you have no plan, max savings with index funds and a Roth IRA
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NEW YORK (CNNfn) - Anyone can build a solid nest with a 401(k), but what if you're one of those people without a company-sponsored plan? How can you possibly save enough for a comfortable retirement?
In response to a reader's question, Frank Armstrong, a certified financial planner and president of Managed Account Services in Miami, suggested capitalizing on both a Roth IRA and index funds.
Ask the experts a question
My company has no 401(k) plan. I waited several years but finally opened a Roth IRA. Now, I'm worried that I'm limited to $2,000 a year. How can I maximize my savings? Is there any way to catch up?
Help may be on the way. There are several bills in front of Congress that would increase deductions and contributions for IRAs. In the meantime, if you are married, you may be able to open an IRA for your spouse.
But, you shouldn't wait for the government to do something before you begin a systematic investment plan. Your future is in your own hands. You can catch up on your own.
For instance, you could set aside savings in your own account that are as tax efficient as possible. Remember, if you buy a stock that you never sell, you never have to pay taxes on the gains. If you sell it at retirement time, the deferred gains are taxed at capital gains rates, which are currently capped at 20 percent at the federal level. Rather than use individual stocks, I would recommend total market index funds like Vanguard's.
The diversification removes all the individual stock risk. (Of course, you will still have market risk.) There is almost no turnover, and dividends make up a very small part of the total return. So, the account is well diversified, tax efficient, flexible, and economical.
This type of individual account is (mostly) tax-deferred with capital gains treatment, the next best thing to a Roth IRA, which is tax-free. Like a Roth IRA, there is no current tax deduction. But, unlike a Roth IRA, there are no limits to how much you put away, and no early withdrawal penalties.
* Disclaimer 
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