This week, Gail has tips for a Marine without retirement savings... and confirms yet another mysterious twist to the Roth IRA rules.

Dear Gail,

In the previous 20 years I was an enlisted Marine without a retirement plan and
hardly had any savings when I left the Corps.

Now I'm trying desperately to catch up. I gross about $130,000 a year. I contribute the maximum to my employer's 401K, and I put about 30% of my take-home into long-term stock investments and savings. I'm not sure of my eligibility for a Roth IRA or traditional IRA and feel I might be missing the boat here. I also would appreciate a heads-up on other retirement-oriented vehicles that I could use.

Regards and thanks,

Dear Mike  —
Buck up, Marine!  If you thought boot camp was tough, this should be... a walk in the park.  Really.

I'm going to assume you're currently in your 40's and single. You also don't mention any children. If you don't have any dependants or someone you want to take care of upon your death, then life insurance probably isn't a big priority.

On the other hand, disability insurance is.  Think about what would happen to your retirement plans if you lost your job?  If disability insurance is offered through your employer, take it.  If not, then consider looking into coverage.  It's especially crucial for single individuals who have no one else to help pay the bills.

For starters, congratulations for socking away such a big chunk of your income. Just don't get too crazy.  Remember to leave yourself some money to have a little fun.

Pat Rozanski is a financial planner with LSB Investment Services in Winston-Salem, North Carolina. She points out that your income — even after adjustments — probably exceeds the limit for Roth IRA contributions ($95,000 if single; $150,000 if married filing jointly).

However, regardless of your income level or participation in a retirement plan at work, you are still eligible to contribute to a non-deductible, traditional IRA.  As the name implies, you don't get to deduct your contribution.  And, money withdrawn before age 59 1/2 could be subject to income tax and a penalty. However, earnings on your IRA investment are tax-deferred which, in your tax bracket, can really give your next egg a boost.

You have until April 15th to make the full $2,000 IRA contribution for 2001.  As regular readers of this column know, this limit goes to $3,000 starting with 2002 IRA contributions and you're eligible to make one right now.  So you can immediately provide a tax-deferred home for $5,000.

Rozanski, a CFP, suggests you next consider a variable annuity.  As with a traditional IRA, investments in a variable annuity offer the potential for tax-deferred growth. You pay ordinary income tax on the earnings, but only when you actually make a withdrawal. 

She points out, however, that you "have to be a long-term investor" for this to make sense. That's because the IRS hits you with a substantial penalty if you take any money out of an annuity prior to age 59 1/2. In addition, most variable annuity sponsors require a 6 or 7-year commitment; get out sooner and there are additional penalties.  But in your situation, this wouldn't be a problem.  The nice thing is there are no income limits on who is eligible to have an annuity and no ceiling on how much you can invest.

Variable annuities combine life insurance with investments similar to mutual funds. The annual fees on VAs tend to be slightly higher than other retirement investments because of the additional benefits they offer. Some VAs, for instance, guarantee you a minimum return, even if the investments you selected go down the proverbial tube.  This can allow you to invest
fairly aggressively in the hope that the stock market does well, with the peace of mind that if it doesn't, at the very least, your money will have earned, say, 5% a year.

Rozanski points out that since the money inside your annuity is sheltered from taxes, you can change your investments around without triggering any capital gains tax.  You could, for instance, start out in growth-type investments, then later re-allocate your money toward more conservative ones as you near the age you plan to start withdrawals.

VAs differ from IRAs or company retirement plans in that you are not required to start withdrawals when you reach age 70 1/2.  This would give you the flexibility to initially use your military pension and 401(k) account for the bulk of your retirement income and only dip into the annuity when you need extra money.  In the meantime, since you pay no tax on VA earnings until you begin withdrawals, your investment can keep working for you without any short-term tax consequences.

One important feature unique to annuities is the ability to "annuitize" the contract if you want.  Once you do, the sponsor is on the hook to pay you a certain level of income, based on the value of your annuity, for as long as you live. Or, you could choose some other payout period such as 10 or 15 years.  It's a way to create a guaranteed stream of retirement income that lasts as long as you do.

But before you rush out and invest in anything, both Rozanski and I agree your first step ought to be a visit with an experienced financial advisor who can evaluate where you currently stand and map out a clear-cut path to get you where you want to be come retirement.  The Financial Planning Association will give you the names of three planners in your area if you call 800-322-4237 or log onto www.fpanet.org.  You might also ask some friends for recommendations.

You've got all of the necessary elements for a successful retirement on your side: time, money and personal commitment.  All you need is someone who can put together a plan that makes sense in terms of taxes and risk.

You need to see the actual numbers.  You know, $____ invested per year, earning ___-percent, over 20 years grows to $_____.  Find someone who can fill in the blanks and steer you through the tax code and around Wall Street. Once it's all laid out,  you'll feel more confident.

So, have a beer.. stroll through the grass in your bare feet or, depending upon where you live, make a snowman.. splurge on an ice cream cone- two scoops!.. take a kid you know to the movies.  In other words, RELAX!
You're in much better financial shape than you think.
Best wishes,

P.S.  Thanks for spending 20 years defending our country.

Dear Gail,

"If you are married, but file separately, neither spouse can contribute to a Roth IRA."  Say what?   Did you misspeak?
J. Shaffer

Dear John —
No.  If a married couple files "separately" instead of "jointly," neither person is eligible to contribute to a Roth IRA.

P.S.  Please don't ask me to explain the reasoning behind this!

If you have a question for Gail Buckner and the Your $ Matters column, send them to moneymatters@foxnews.com along with your name and phone number.

The views expressed in this article are those of Ms. Buckner or the individual commentator, and do not necessarily reflect the views of Putnam Investments Inc. or any of its affiliates. You should consult your own financial adviser for advice regarding your particular financial circumstances. This article is for information only and is not an offer of the sale of any mutual fund or other investment.