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What do I need to know about contributing money to an IRA vs. a 401(k)? Also, I thought that if I have a 401(k) plan at work that I could not contribute to an IRA as well. -- J.K.

IRAs and 401(k)s: Traditional, Roth, conversions, rollovers... Saving for retirement can be a confusing process. But where you stash your cash can make a huge difference when you're ready to enjoy your golden years.

Welcome to Retirement Savings

We all know that saving for retirement is a very big deal, but let's face it: Retirement accounts can be intimidating. With no fewer than 11 different kinds of IRAs out there, it can be compelling to just put off setting up your retirement accounts for another day. That's a mistake, according to Stuart Ritter, a certified financial planner at T. Rowe Price ( TROW). Ritter says retirement savings should start "as soon as you have earned income -- as soon as you enter the workforce."

How much should you save? Ritter and T. Rowe Price put that number at 15% of your gross income. That's the savings rate they've found makes the most sense for most people, and over the years it will pretty much guarantee that you'll pull in a decent income each year after you retire from the workforce.

How to Make a Smooth Transition Into Retirement

Why Retirement Accounts Matter

There's saving for a rainy day, and then there's saving for retirement. While you should do both (see " Creating an Emergency Fund"), the retirement savings are going to be less painful to stash away.

Ritter says, "401(k)s and IRAs give you tax benefits for using that money for retirement." In other words, putting retirement money in retirement-focused accounts will save you money come Tax Day. But which retirement account should you use?

The myth is that if you have a 401(k) plan at work, you cannot save via an IRA as well. But if you have a 401(k) at work, you can and should also have an IRA. Saving in a 401(k) might affect whether or not all contributions to your IRA are tax-deductible, but that's all. Remember: Anyone can have a traditional IRA.

Where to Put Your Money

Figuring out which type of account to use is easier than you may think. Ritter explains: "If you're making a decision on where to put your retirement money, first and foremost save in your employer's 401(k) plan to the match. Then, if you're under age 50 (or over 50 but don't think your tax bracket is going to drop much in retirement), use the Roth IRA."

If you've still got retirement money after maxing out your IRA for the year (up to $5,000 in 2008), Ritter advises to go back and max out your 401(k) (up to $15,500 in 2008) until you hit that magic 15% savings mark.

That's not something that will work for everyone, though. If you don't qualify for a Roth IRA, it makes more sense to fill up your 401(k) first, then move over to a traditional IRA. Likewise, if your employer offers you the new Roth 401(k), you'll want to fill it before opting to put any money in an IRA.

When you run out of tax-advantaged accounts to put money in and still need to save more to meet that 15% guideline, you can still save for retirement in a regular taxable account. This can be a big one for those whose employers don't offer a 401(k).

"People start adding up these contributions in their head and say, 'No one's ever going to get to the taxable account!' Well, if you don't have a 401(k), you can get there pretty quickly," says Ritter.

IRA Conversions

There will be times when it makes sense to convert a traditional IRA to a Roth IRA, or vise versa. If this is the case, know that it's never too late to make a conversion, even if you're already old enough to receive your required minimum distributions (RMDs).

If a conversion makes sense to you, and you're thinking of converting to a Roth, it's worth marking your calendar for 2010. That's because it's the year that you'll be able to convert a traditional IRA to a Roth IRA even if you wouldn't be qualified for the Roth account. It's something worth looking into for your own situation.

One of the easiest ways to figure out if a conversion is right for you is by checking out some of the online calculators available on TheStreet.com.

Of course, if the do-it-yourself method isn't right for you, talking to a financial planner is always a good bet.

Think Amount and Account

As important as selecting the right retirement account is, Ritter offers investors a word of advice: "How much you contribute has a much greater impact on your success than which account you're using."

Politics and Your Retirement Plan

Jonas Elmerraji is the founder and publisher of Growfolio.com, an online business magazine for young investors.

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