ou can retire comfortably with the help of the U.S. government. There are now several ways to save for retirement in your later years while saving on your taxes.

These retirement vehicles are structured in one of two ways - either as a tax-deferred investment with an upfront deduction for your retirement investment contribution, or as an investment where all gains flow to you tax-free but without the upfront deduction. Let's look at each of these retirement options so that you can decide which structure best fits your own objectives.

Tax deferral allows you to earn a return on money that normally would have gone into taxes. For example, if I'm in the 28 percent bracket and earn an additional $100, I normally lose $28 of that to tax and get to keep and reinvest the remaining $72. However, if the $100 was earned in a tax-deferred account, I get to "keep" and reinvest the whole $100. When I take the money out of the account, I'm taxed on the earnings.

But by that time, the value of the account is greater because I have been earning returns on money that would have been immediately lost to taxes. Moreover, if I take the money after retirement, I might be in a lower tax bracket than I had been during my working years.

Note that if the money had gone into the account as a tax-deductible contribution, both the principal and any earnings are both taxed when I withdraw those funds. But this is reasonable because the original contribution was deducted and therefore never taxed.

This is the difference between tax-deferred and tax-exempt. With a tax deferral, you pay the tax later. With a tax exemption, you never have to pay the tax. Let's review tax-deferred retirement investments and then compare them to the new tax-exempt Roth IRA.

Your first and best choice is if your employer offers a 401(k) plan. I've often had clients ask me whether they should invest in their company's 401(k) plans or invest in outside funds, like mutual funds. My answer is simple: Any money you put into a 401(k) isn't taxed until you withdraw it. Since the idea is not to take the money out until after you retire, those monies probably will get taxed at a lower rate than while you're working. All of the earnings on your 401(k) investment are tax-deferred and many companies match at least part of the money you contribute, increasing your nest egg even more.

As long as you don't need the money to get by right now, a 401(k) or any other qualified pension investment plan is a wise investment and tax choice.

All qualified retirement plan contributions are above-the-line deductions, meaning that the money is taken out of your pay before you are taxed. If you're an employee, they never show up as income on your W-2. If you're self-employed, which includes being the owner or a partner in an unincorporated business, they are deductible above the line. That means that they will be deductible even if you claim the standard deduction and do not itemize.

Simplified employee pension plans (SEPs) were created to establish a "simpler" mechanism for employers to make deductible retirement contributions for their employees.

Contributions made to an SEP are not included in an employee's gross income, but are deposited into individual IRAs in the name of the plan member. The employer's contribution must be a specified percentage of the employee's total compensation up to $160,000, and that same percentage rate must be used for all employees. Unlike profit-sharing plans, an SEP does not require employers to make recurring contributions to the plan to remain qualified.

If you have self-employment income, you can set up an Individual Retirement Account or a Keogh plan. You may not have both a Keogh plan and a deductible IRA for the same self-employment income in the same year (you may have a Keogh and a non-deductible IRA). The primary difference between an IRA and a Keogh plan is the amount of earnings that may be sheltered.

With an IRA, as much as 100 percent of your compensation, up to a limit of $2,000 per year ($4,000 with a spousal IRA), may be deducted. With a Keogh, the contribution limits are 25 percent of earned income or $30,000, whichever is less. (This 25 percent figure is really 20 percent for owner employees. It's 25 percent of the net income after the Keogh contribution, which equates to 20 percent of the income before the contribution. For example, if I earned $100, 20 percent would be $20, which represents 25 percent of my net $80 income.)

The major disadvantage of a Keogh is that you must also contribute for all eligible employees if you make contributions for yourself. It can become very expensive if you have several employees.

A Keogh may be structured either as a "money-purchase pension" plan or as a "profit-sharing" plan, or as a combination of both. With a money-purchase plan, the employer is normally locked into making the contributions each year. Contributions may be the lesser of 25 percent of compensation or $30,000.

With a profit-sharing plan, contributions can be discretionary with respect to both amounts and whether they're made at all. Deductible contributions can be as much as 15 percent of compensation, up to $30,000 for each participant. (Note that the 25 percent figure and the 15 percent figure are reduced for owner employees as above to 20 percent and 13.0435 percent.)

Traditional IRAs are tax-deferred retirement investment vehicles. They're available to individuals under age 70╜ who have earned income, regardless of income level. Earnings eligible for IRA contributions include wages, salaries, professional fees and other amounts received for personal services rendered, including commissions, tips and bonuses. All contributions must be made in cash. Contributions of property are not allowed.

Maximum contributions to an IRA are $2,000 a year for yourself, and another $2,000 annually for your spouse, even if that spouse doesn't work. In that case, however, you must have had at least $4,000 a year in earned income.

You can always make nondeductible IRA contributions to the limits above. The earnings on these contributions accrue on a tax-deferred basis, but your original contribution is not currently deductible.

Deductible IRA contributions, however, may be limited based on your adjusted gross income if you're an active participant in certain specified retirement plans such as employer-sponsored 401(k) plans. The current law phases out eligibility for individuals with adjusted gross incomes between $30,000 and $40,000, and for couples filing jointly it phases out eligibility between $50,000 and $60,000. These limits only apply if you're covered by an employer's retirement plan. There are no income limits if you don't participate in another retirement plan.

Withdrawals are taxable when made. And, if you withdraw money prior to age 59╜, you also may be subject to a 10 percent penalty. There are exceptions, such as if you become disabled or die (this is for your heirs' benefit).

You can withdraw money penalty-free if it's to pay for qualified higher education or for a "first-time" home purchase ($10,000 maximum). It's important to note that "first-time" is defined as anyone who has not had an interest in a primary residence for the past two years. You can play with this one.

If you currently own your home jointly with your spouse, redo the deed to have only one of you own the house. Two years later, the other spouse can qualify for a penalty free withdrawal of up to $10,000 to buy a second home, or, if you want to push the envelope, to "purchase" the house from the other spouse (just change the deed from one spouse to the other).

The Taxpayer Relief Act of 1997 created a new kind of IRA called the Roth IRA. Under this investment vehicle, you get no deduction for your contributions, but all of the principal and earnings come out tax-free. Qualified distributions from a Roth IRA are not only tax-free, but they won't be subject to the 10 percent penalty on early withdrawals. Qualified distributions are those made after five years from the date you first contributed to a Roth IRA, and those that meet any of the following specifications:

Moreover, distributions for educational expenses may also be penalty-free, subject to ordinary income taxes on the accumulated earnings.

You are allowed a maximum $2,000/$4,000 total contribution into a traditional IRA and a Roth IRA. You can't do both. On the Roth, eligibility is phased out between adjusted gross incomes of $95,000 and $110,000 for individuals and $150,000 to $160,000 for couples.

The Taxpayer Relief Act of 1997 also permanently repealed the 15 percent excise tax on "excess accumulated retirement funds." So there are no longer any penalties on being "too successful" in your retirement planning.

While the tax deferral and/or tax exclusion of these plans makes them excellent vehicles for retirement savings, one additional caveat should be made. With the deferral plans, all income comes out as ordinary income, subject to tax at your highest marginal rate. (The top federal tax bracket currently is 39.6 percent.)

Alternatively, under the new law, capital gains may be capped at an 18 percent rate beginning in 2000 and may be taxed as low as 8 percent in the future. If your retirement investments are appreciating capital assets and if you don't have a long wait until retirement, the advantage of deferral may be outweighed by the loss of capital gain treatment on your gains.

In any case, use these retirement vehicles to cut your taxes now while ensuring your financial future.