Dear Dr. Don,
I’m been putting $200 per month into a 401(k) at work. The only thing is that my employer doesn’t provide a matching contribution. So, my question is: Do I keep putting money into the 401(k), or should I put it someplace else? I don’t have any credit card debt, but I am still making payments on a car and my house. What should I do?

Thank you,
— Cristina Contribution

Dear Cristina,
You don’t say how big your 401(k) plan balance is with your current employer. I’d suggest you grow the account at least to the level that minimizes account fees and expenses. For example, if your plan includes a mutual fund that charges an account fee for balances of less than $2,000, grow or consolidate your 401(k) investments to get your balance up to that number. Saving $20 in fees per year on $2,000 is a 1 percent savings.

Department of Labor rules will require disclosure of 401(k) account fees and expenses starting in August 2012. Be sure to review that disclosure document to see how you can manage fees in your 401(k) account.

Once you have your 401(k) at a level where fees and expenses are not much of an issue, I’d suggest you look at putting monthly savings into a traditional or Roth individual retirement account instead of your company plan because you’ll have more control over the investment choices and fees paid in the account.

Since your employer offers a 401(k) plan, your ability to contribute pretax dollars to a traditional IRA may be limited, but you can always contribute after-tax dollars up to the contribution limit for that tax year.

The ability to contribute to a Roth IRA is phased out based on your income level. In 2012, the phaseout begins at a modified adjusted gross income, or MAGI, of $173,000 if you are married filing jointly or $110,000 if you are single.

Because you always have the ability to contribute after-tax dollars to a traditional IRA up to the contribution limits for that tax year, you can always contribute to a traditional IRA and then convert it to a Roth IRA.

In general, you want to contribute after-tax dollars into a Roth IRA when you think you’ll be in a higher tax bracket in retirement than you are now. A Roth IRA also is the preferred retirement account if you plan to pass the account on to your beneficiaries, versus spending the account balance in retirement. Roth IRAs don’t have minimum required distributions, or MRDs, during your lifetime, while traditional IRAs do have MRDs.

There are plenty of low-cost options for opening a traditional or Roth IRA. If your employer doesn’t offer a matching contribution, you should be able to reduce the annual fees and expenses and give yourself a better array of investment options by starting to contribute to an IRA versus a 401(k).

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