Retirement income in more than one account?

You’ve diversified your stock portfolio because you know that you shouldn’t keep all your financial eggs one basket; the same can be done for your retirement plans. You can invest in a 401(k), a traditional IRA and a Roth IRA. And if you have self-employment income, you could add a SEP or a Keogh, too. And on top of that you can always invest for your retirement in a taxable account, such as a traditional mutual fund, which does not qualify for a tax break.

Why use all these different approaches in saving for your retirement? Because each can be affected by different circumstances. For example, your 401(k) might be doing well now. But what if your company only matches with company stock—a fairly common practice—and the firm has a bad year?

Suppose your employer has to discontinue the matching contribution? Having money for your retirement invested elsewhere can lessen the effect of the hit. Retirement funds not invested through a company-sponsored 401(k) are most likely in a traditional IRA. As you know, that money goes into your account pre-tax; but when you start to withdraw those funds, you’ll owe income taxes on that money. The tax rate could be higher, depending on your state taxes.

Having several retirement accounts isn’t as cumbersome as you might think; just consider them all part of one total retirement portfolio. If you can’t afford to fund everything, here’s how I would prioritize:

• Fund the 401(k) first to at least the amount needed to qualify for the employer match. You can't afford to pass up that free money.

• Consider funding a Roth IRA next if you have at least five to 10 years before retirement. 401(k) withdrawals are taxed as ordinary income. Roth withdrawals are tax-free. So the two plans complement each other well. • Return to the 401(k) with any additional money you may have.

• If you have access to a Simple IRA, SEP or Keogh, fund them in the same order you might the 401(k). These retirement plans generally allow you to put much more in them than do IRAs.