Don't worry about tax breaks, just save

One day each week, we post a financial question from a reader and answer from Dan Danford. This week's question is about retirement savings for those with significant incomes. If you have a question, post it in the comments section.

QUESTION: I am a physician. I make too much to qualify for a Roth IRA, and I am considered a highly compensated employee, so I’m very limited in what I can contribute to our work retirement plan. I don’t really understand why I am so limited. Do I have any options for retirement savings?

ANSWER FROM DAN DANFORD: Our government punishes high earners with limitations on how much they can contribute to retirement plans. It's a throwback to day when managers conspired to keep workers out of plans, while funding their own to the max. Now, people at the top a the wage ladder face face daunting rules about deductible deferrals or contributions. Once you've met those limits - and I assume from your question that you have - there are just a few options left to you. Depending on where you work, you might try a deferred compensation plan. These are often funded by an insurance product, but they can be created by your company as a benefit for a select group of managers. This type of program is often used to augment qualified retirement plans for highly compensated employees.

As an individual, you could look into buying an annuity product though an insurance company. I don't often recommend annuities because most feature high costs and limited flexibility (including surrender charges, which I hate). But, they are a way to set aside money towards retirement when you are maxed out on retirement plans.

Last, just set money aside in an investment account and don't worry so much about the tax breaks. Only dividends and interest are taxable as income, and it's easy to minimize those on an annual basis. Gains will be taxed at favorable rates, so that's a benefit, too. Importantly, you have maximum flexibility with accounts of this type. No tax penalties, and you can spend whenever and however you like.