As you should have already learned, there are many options when it comes to retirement accounts. The following considers the most important types and proposes a general order of where you should invest your savings:

• Employer plan with a match
• Roth IRA
• Employer plan without a match
• Traditional IRA
• Taxable investment
• Annuity

Each of these options is described below.

1. Employer plan with a match
If your employer matches your contributions to the company's defined contribution plan -- e.g., 401(k) or 403(b) -- this should be the first place to invest that which you can afford for the long term. If your employer is matching 50% of a certain percentage of your income, such as 6%, you are guaranteed a 50% return on that 6% of your salary. Or put another way, you have just invested 9%.

Other advantages of an employer-sponsored plan:

• Tax deduction: The money you contribute to the employer plan is not included in your income for tax purposes
• Tax-deferral: You don't pay taxes until you retire. That leaves more of your money to grow through the years
• Automatic investment: The money is transferred directly from your paycheck to your account. You won't miss it, and you won't forget to invest

The contribution limits vary from plan to plan, but generally the limits are $15,500 for 2007 and again in 2008. In 2009 and thereafter, the limit will increase in $500 increments whenever the cumulative effects of inflation indicate such an increase is needed.

In addition to the normal contribution limits outlined above, those over the age of 50 may make an additional "catch-up" contribution of $5,000 in 2007 and 2008. In 2009 and thereafter, the "catch-up" limit will increase in $500 increments whenever the cumulative effects of inflation indicate such an increase is needed.

Warning: Investing money in your employer's plan applies only to those dollars that are joined by matching dollars in your account. For example, if the matching percentage applies only to the first 6% you invest in the plan, you should make every attempt to invest the entire 6%, but not necessarily any more (see option #3).

2. Roth IRA
The next place to invest is a Roth IRA (not a traditional IRA), as long as you qualify. Your ability to contribute to this IRA for 2008 begins to phase out at a modified adjusted gross income of $101,000 for single filers and $159,000 for joint filers, reaching the ineligible stage at $116,000 and $190,000, respectively.

Why a Roth IRA rather than a traditional IRA?

• Tax-free growth: While you won't get a tax deduction on contributions to a Roth IRA, you won't have to pay taxes on the earnings when you begin withdrawals
• More control: If you open your account with a discount broker, you can purchase individual stocks, bonds, and any index investment offered through that broker. This is an advantage over the limited selection offered by most employer-sponsored plans
• No mandatory distributions: With employer-sponsored plans and traditional IRAs, you must begin withdrawing funds by April of the year following the year in which you reach age 70 1/2, even if you don't need the money. This is not true for a Roth IRA. You decide when you want to start withdrawing money.

The contribution limit for a Roth (and traditional IRA as well) is $5,000 for 2008. Thereafter, the maximum allowable contribution will be indexed to inflation in $500 increments. In addition to the normal contribution limits, those over the age of 50 may make an additional "catch-up" contribution of $1,000 in 2008.

3. Employer plan
Remember that the first choice for retirement investing was your employer plan, up to the maximum amount that is matched. Beyond that, the choice should be considered only after maxing your Roth IRA contribution(s).

There are still advantages to putting more money into your employer's plan. First, the money that you contribute is pre-tax, which reduces your overall taxable income and saves you money. Second, the money is automatically withdrawn from your check and deposited into the plan. You are less likely to miss it, and more likely to invest it.

There is a potential disadvantage, however. The investment options in your plan might not be very good. If the plan is full of a bunch of underperforming mutual funds, you might want your money invested in better accounts. 

4. Traditional IRA
If your income level is too high for you to start or to continue contributing to a Roth IRA, you can nonetheless make a contribution to a traditional IRA. The contribution limits are the same as for the Roth, and those limits apply to total annual IRA contributions. Therefore, if you put the maximum into your Roth IRA ($5,000 for 2008), you cannot put any money into a traditional IRA.

A traditional IRA grows tax-deferred and is taxed as ordinary income upon withdrawal. Additionally, contributions are tax-deductible if 1) your employer doesn't offer a retirement plan, or 2) you are single and your adjusted gross income is below a certain level. Those levels change every year, so check with the IRS. For 2008, for example, the limit is $101,000 (gradually phased out until $116,000) for single tax filers or $159,000 (gradually phased out until $169,000) for married filers.

5. Taxable investments
After you've maxed out the tax-advantaged vehicles at your disposal, only then should you put your retirement savings dollars into taxable accounts. However, if you don't like the investment options available in your employer-provided plan, then you might move taxable investments ahead of option #3 (but only after you have contributed the maximum to an IRA).

6. Annuities
For most people, annuities are a last-resort investment because they are too expensive, offer mediocre insurance coverage, restrict the owner's investment choices, and lack liquidity. Because of the large fees associated with annuities, they are a favorite of brokers and planners. Annuities are most suitable for investors who:

• Have contributed the maximum to their employer-provided plans and IRAs and desire further tax deferral on investment gains
• Prefer investing in mutual funds as opposed to individual stocks and bonds
• Plan to keep the annuity for at least 15 to 20 years
• Are in a 25% or higher income tax bracket today, but expect to be in a lower income tax bracket in retirement
• Don't need the annuity proceeds prior to age 59 1/2
• Are unconcerned that heirs must pay ordinary income taxes on any appreciation
• Desire a "guaranteed" income for life in retirement

Generally speaking, here are the three basic rules for asset allocation:

1. Any money you need in the next two years should be in a cash account, such as your bank savings account
2. Any money you need in the next three to five or even seven to 10 years (depending on your risk tolerance) should be in a safe fixed-income investment, such as certificates of deposit or bonds
3. Any money you don't need in the next six to 10 years is a candidate for the stock market, and if you won't need it for more than 10 years, it should definitely be in the stock market. Which and how many mutual funds to select will be a decision based on your risk tolerance, amount already invested, amount being invested, and the fund choices available to you

If you stick to these three rules, you will ensure that the cash you need in the near future is readily available, the money you need in the next few years will be safe from a stock market crash, and the money you need down the road will be growing enough to beat inflation.