Maximize your retirement savings

(Money Magazine) -- Question: I want to max out my 401(k), but my company limits contributions to 20% of salary. Given what I earn, I would have to contribute more than 20% to reach the maximum contribution allowed by law. I know I can handle putting away more, but because of my employer's 20% cap, I can't. Can companies really limit my contributions like that? And, if so, what can I do to save more? -- Laura, Denver, Colorado

Answer: I admire your desire to get more money into your 401(k) account. But, alas, as the Rolling Stones so famously put it on their 1969 "Let It Bleed" album, "You can't always get what you want."

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Walter Updegrave is a senior editor with Money Magazine and is the author of "How to Retire Rich in a Totally Changed World: Why You're Not in Kansas Anymore" (Three Rivers Press 2005)

Ultimate Guide to Retirement

• Getting started
• 401(k)s & company plans
• Investing
• Annuities
• IRAs
• Self-employment plans
• Pensions and benefit plans
• Social Security
• Insurance
• Estate planning
• Living in retirement
• Getting help

Granted, that caveat may seem a bit perplexing considering the ubiquitous references to a 401(k) contribution limit of $16,500 for 2010 (plus another $5,500 catch-up contribution if you're 50 or older).

But that's just the max imposed by federal law. As the IRS so helpfully points out in its 401(k) Resource Guide, "other limitations may come into play that would limit your elective deferrals to a lesser amount. For example, your plan document may provide a lower limit or the plan may need to further limit your elective deferrals in order to meet nondiscrimination requirements."

All of which is to say, yes, companies really can limit your contributions like that.

Still, just because you can't stuff as much as you would like into your 401(k) doesn't mean you're your savings effort must come to a screeching halt. Without going to too much trouble, you should be able to find other ways to take up some or all of the slack.

The first place you should consider stashing any extra retirement savings is in a traditional deductible IRA or Roth IRA. This year, you can contribute up to $5,000 to an IRA, plus an extra $1,000 if you're 50 or older. (Actually, if you act by April 15, you can make a contribution for the 2009 tax year as well.)

Whether throwing in an extra five grand brings you to where you would be had you been able to sock away 20% of salary in your 401(k) depends on how much you earn. But if you make, say, $60,000 a year and contribute the maximum 20%, or $12,000, to your 401(k), throwing another $5,000 into a traditional deductible IRA would bring your annual savings to $17,000, or just above the $16,500 401(k) limit. Of course, this assumes you're eligible to do a traditional deductible IRA or Roth IRA.

Given that your salary isn't high enough for a 20% contribution rate to get you to the $16,500 401(k) max -- which suggests you earn less than $82,500 -- it's possible that you're eligible to do a deductible IRA and virtually certain that you can do a Roth IRA. But you can make sure by clicking here. Alternatively, you can plug your income and other info into Morningstar's IRA calculator, which will tell you which type of IRA, if any, you can do.

If you can't do an IRA for some reason -- or you want to save even more for retirement after contributing to one -- there are other tax-advantaged options. For example, if you have freelance or self-employment income, you may be able to contribute to a SEP-IRA account or maybe even open a self-employed (aka solo) 401(k).

If you exhaust the menu of government-offered tax-advantaged accounts and still have moolah to salt away, you can consider vehicles that don't generate tax-deductions (a la 401(k)s and IRAs) or tax-free withdrawals (Roths), but do provide other tax benefits. Stock index funds and ETFs, for example, buy and hold the securities of a particular index rather than constantly trade stocks. As a result, they typically generate fewer taxable distributions than actively managed funds, which means less of your return goes to the taxman.

For the names of index funds and ETFs, check out our Money 70 list of recommended funds. And then there's the breed of funds known as tax-managed funds. The managers of these portfolios pursue deliberate strategies to minimize taxable gains, such as taking losses in some holdings to offset gains in others. You can get generate a list of tax-managed funds by typing the words tax managed into the Quote box at Morningstar.com.

So to sum up, yes, your company's 401(k) contribution policy does make it a little tougher for you to get you what you want. But if you avail yourself of some of the options I've outlined, then, to complete the Stones' quote from above, "you just might find you get what you need."