A Suze Orman exclusive

The 2003 federal tax bill pushed income tax rates to their lowest level in decades. That's great, but it means that the value of your upfront deductions is less valuable now than it was in past years. Okay that is no big deal, for overall you are paying less. But let's also think long-term.

Given our federal budget problems, our Social Security fund issues and lord knows what else, do you think our government can afford to keep rates this low forever? If you do, please email me right now. I have a bridge to sell you. Seriously, rates in my opinion are eventually going to have to rise. I am not saying that they are going to go up in the next few years, but then you most likely don't plan to take money out of your retirement plans in the next few years either. So it doesn't really matter in that regard does it?

However 20 or 30 years from now when you just might need to withdraw your retirement savings, higher tax brackets are a distinct possibility. And if that happens, you had best be prepared. For all that money that you are now putting in your tax-deferred retirement accounts may not be worth as much as you think when you go to take it out. Remember because you have funded those retirement accounts with pre-tax dollars, when you go to take them out you will have to pay taxes on that money at whatever tax brackets are in effect at the time. So it is not how much you have in those accounts that matters, it is how much of that money you will actually get to keep and use in the long run. So does it make sense to take these low tax write-offs today to possibly pay a lot more when you go to take that money out? Maybe yes maybe no.

Let’s look at your alternatives. When to invest in a 401(k) and when not to!

Don’t worry I am not about to trash 401(k)s, but here’s another idea that I really want you to take action on. Your employer retirement plan at work (401(k) or 403(b)) is probably where most of you save your money for your retirement. However in some cases it may prove not to be the best alternative for your retirement dollars for reasons that I just mentioned above.

Here’s a great strategy to get the most out of your retirement plans: If your employer offers a company match for your 401(k) plan, please, please, please invest all you can to get the maximum employer match. This is the system where for every dollar you contribute to your retirement plan, your employer also kicks in a contribution: typically 50 cents or so for each dollar of yours. Many employers cut off their contribution at a max of $1,500 or so. That employer match is literally free money you cannot afford to pass up. But after you max out on the match, or if your employer does not match at all, I want you to think about (if you qualify; see below) contributing to a Roth IRA rather than your employer sponsored plan.