Does your employer offer a retirement savings plan? Participating in such plans is an excellent way to build savings for retirement while saving taxes at the same time. The chart below will give you some idea of the difference between investing from pre-tax dollars as opposed to after-tax dollars. The difference is remarkable!

Assumptions:

1. $3,840 (the amount remaining after paying tax on $6,000) is invested in the taxable investment each year.

2. A $6,000 pre-tax contribution is made to the retirement account.

3. Both the taxable investment and the retirement account return 8% per year.

4. The taxpayer is in a 36% tax bracket.

401 (k) plans. With a 401(k) plan, you contribute part of your pay to a plan account set up just for you. You don't pay taxes on the amount you contribute or on the investment earnings in your plan account until you withdraw funds from the plan, usually when you retire. If your employer matches any of your contribution, this is an added tax-deferred benefit.

If you find you need to take money out of your 401(k) plan before you retire, many plans allow you to borrow from your plan account. These loans can be a good deal.

Although you must pay back the loan with interest, you're really paying the interest to yourself. But be aware the interest you pay generally is not deductible.

403(b) plans - Many public schools and certain tax-exempt organizations sponsor 403(b) plans, also called tax-sheltered annuities (TSAs), for their employees. As with a 401(b) plan may allow employees to defer a portion of their pay to the plan on a tax-deferred basis.

Nonqualified deferred compensation plans - Did you earn more than $150,000 in 1996? If so, your employer may have had to cut back on the amounts it contributed for you to a tax-qualified retirement plan because of limits imposed by the tax law. Many highly paid executives are successfully negotiating with their employers to receive supplemental retirement benefits in the form of nonqualified plans to make up the shortfall. With a carefully structured plan, employees can postpone taxes on their nonqualified benefits until they receive them.

Individual retirement accounts - As s wage earner, you can contribute up to $2,000 a year to an Individual Retirement Accounts (as long as you earn at least that much). Starting in 1997, a married couple can contribute up to a total of $4,000, even if one spouse doesn't work outside the home (assuming your combined compensation in 1997 is that much or more). In prior years, you could contribute only $2,250 with a spousal Individual Retirement Accounts. Your contribution will be completely tax deductible if neither you nor your spouse is eligible to participate in an employer-sponsored retirement plan. If either you or your spouse is eligible to participate, your Individual Retirement Accounts deduction may be limited or eliminated, depending on your income.

If you are self employed, you have other alternatives for building a tax-deferred retirement fund and reducing current taxes in the process.

Keogh plans - For example, Keogh plans offer self-employed individuals an excellent way to set aside money for retirement in a tax-favored way. The plan also must cover any eligible employees you may have. Contributions to the plan (within tax law limits) and any earnings on plan investments are not taxed until distributed from the plan. Other tax law restrictions apply.

Keogh plans may be either defined contribution plans or defined benefit plans. Defined contribution plans provide for employer contributions to individual plan accounts for employees (and the self-employed owner). Defined benefit plans don't maintain individual accounts. Instead, the employer funds the plan based on projections of how much the plan will need to pay promised retirement benefits.

• You must have a Keogh plan in place by the last day of the year if you wish to make a contribution for that year. Then, you have until your Tax return filing deadline (plus extensions) to make the contribution.
• If you're close to retirement age, you may be able to build a retirement fund more quickly with a defined benefit plan.

"SIMPLE" retirement plans. Self-employed individuals and small-business owners have a new type of plan available to them for 1997 tax years. A "saving incentive match plan for employees" or "SIMPLE" retirement plan may be structured either as an Individual Retirement Account for each employee or as a 401(K) salary deferral plan. Employers currently without a plan and employing 100 or fewer employees earning at least $5,000 in compensation during the previous year are eligible to adopt a SIMPLE retirement plan.

Briefly, with a SIMPLE Individual Retirement Account, employees (and self-employed persons) can elect to contribute up to $6,000 a year to the plan (adjusted annually for inflation). The employer generally must match employee elective contributions dollar-for-dollar - up to 3% of the employee's compensation. However, a lower match may be elected in no more than two of any five years. Contributions are deductible by the employer and excludable from the employee's income.

A SIMPLE 401(k) plan is similar to a regular 401(k) plan in that employee pre-tax salary deferrals are allowed and the salary deferrals, plus any investment earnings on the deferrals, are not taxed until distributed. Up to $6,000 may be deferred annually, with an employer match up to 3% of compensation generally required.