Q. I am a health care worker who is about to take a job with a small non-profit hospital. They offer a variable annuity through VALIC. I am concerned about taking this job because I have heard such negative reports about variable annuities, especially if they are your primary source of retirement savings (vs. the 401k). Any input that you may have would be appreciated.

  ---M.M., by e-mail

  

A. Retirement plans are important but they shouldn't be at the top of your list when making a job decision. This is particularly true for middle-income health care workers who have attractive alternatives to employer offered plans. Remember, if there is no employer match for contributions, you have nothing to lose--- and much to gain--- by looking for alternatives that will do more for you.

VALIC, otherwise known as Variable Annuity Life Insurance Company, offers two contracts, one with 10 fund sub-accounts, the other with 65. Insurance expenses vary from 0.75 percent to 1.25 percent, with an average of 0.96 percent, somewhat below the industry average. Their total annual expense averages 1.78 percent, well below the industry average of 2.28 percent.

As long as the recent tax cuts for investment income last, however, you have some very attractive alternatives if your income isn't too high.

•  First, you can contribute to an independent IRA account with a low cost provider. This will reduce your income tax and get you the same tax deferral on investment income as the variable annuity. Your annual expenses, however, could be as much as 1.60 percent a year lower. (This assumes you invest in a Vanguard index fund such as Vanguard Total Market.)

•  Second, you can contribute to an after-tax Roth IRA account with a low cost provider. This won't reduce your current income tax but it will get you a tax-free return on money invested. If your tax rate tomorrow is the same as your tax rate today, it works out the same as a conventional IRA. Lower expenses would, again, beat the variable annuity option. The baggage of insurance expenses is an unnecessary burden on your long-term accumulation.

•  Third, you can contribute to an everyday after-tax taxable account. You can also invest in low cost tax efficient mutual funds--- such as index funds--- that will be lightly taxed because dividends and capital gains are now being taxed at only 15 percent. You can also accumulate iSavings Bonds that will defer income taxes on your return and provide you with inflation protection.

That's a lot of alternatives. All of them will work better for you than a moderate cost variable annuity.

  

Q.   I'd like to know how to invest $500 a month for my last 5 years of work. I'm not relying on my income for retirement--- my husband will retire in two or three years after working for the same company for 30 years. He'll have a good pension and a nice amount of money in his 401k.

Of that possible $6,000 a year, should I put $3,500 a year in a Roth since it is a tax-free at withdrawal at 59  ½? And, since I work for a school district, should I put the rest in a 403(b)? Could you suggest the best vehicles for my money?

---P.B., by e-mail

  

A. If your family is like most families; you have more money in qualified accounts--- 401(k), 403(b), and IRA accounts--- than in conventional (taxable) savings. I suggest that you work on building the accounts you can access with minimal tax consequences. That means drop the 403(b), maximize the Roth IRA contribution, and put the remainder in a taxable equity fund where the realized returns will be taxed at 15 percent. If you do this, you will gain flexibility you currently don't have.