by Gene Walden

The U.S. Congress has given working Americans a great opportunity to lower their taxes during their working years while putting away money for their retirement years. Tax-sheltered retirement plans, such as IRAs, Roth IRAs, and 401k plans have helped millions of Americans prepare for a more secure retirement. But not all Americans take full advantage of these plans. Are you getting the most from your retirement savings plans?

Tax-sheltered retirement savings plans typically allow you to deposit money you’ve earned into an investment account that grows tax-free until you begin to withdraw the money after you retire. Most of these plans also allow you to deduct contributions from your taxable income for the current year, enabling you to lower your annual income tax payments.

The contribution limits for retirement plans continue to climb. Here is an overview of the current amount you can contribute to each type of plan:

Traditional IRAs

This year, you can contribute up to $4,000 for a traditional IRA. If you are over 50, you are allowed to invest an additional $1,000 as a “catch-up” contribution. In 2008, the contribution limit will increase from $1,000 to $5,000, while the catch-up contribution will remain at $1,000.

The money contributed to a traditional IRA can be deducted from your current year’s income. While the money will grow tax-free in your account, when you withdraw the money after retirement—after you are 59 ½ years old—you will have to pay income taxes on the distributions. You do not need to begin drawing money from your IRA until you are 70 ½ years old.

Roth IRAs

You can contribute up to $4,000 for a Roth IRA this year and up to $5,000 next year. If you’re over 50, you can contribute an additional $1,000 catch-up contribution this year—and in 2008.

However, a Roth IRA differs from a traditional IRA in several ways. Contributions to a Roth are never deductible from your current year’s income tax. Qualified distributions (both contributions and earnings) are entirely tax-free if you wait to take them until at least five full years after you first established a Roth and after you reach 59 ½. Also a Roth IRA is different from a traditional IRA because you do not have to start taking distributions when you reach age 70 ½.

401(k) Plans

A section 401(k) plan is a qualified retirement plan offered to employees at their place of business. Like a traditional IRA, the money contributed to a 401(k) plan reduces the employee’s taxable salary by the amount of the contribution. And like an IRA, the money grows tax-deferred in the account until the employee begins to withdraw the funds. Most 401(k) plans allow employees to choose from a variety of investment options (typically mutual funds) that meet their goals and objectives.

This year, you are allowed to contribute $15,500 to your 401(k) plan, which will remain the same for 2008. Individuals who are over 50 can make an additional catch-up contribution of $5,000. That limit remains the same in 2008.

403(b) Plans

These plans are designed for employees of public schools and certain tax-exempt organizations. The 403(b) plans are very similar to 401(k) plans in requirements, benefits, and contribution levels.