Q: I contribute to a 401(k) account at work. Does that mean I am not allowed to put money into an IRA? -- David, Oceanside

A: For some reason, there is a widespread belief that participating in an employer-sponsored plan such as a 401(k) precludes you from making additional contributions to an individual retirement account. A study last year found that 48 percent of people surveyed thought that was the case.

The better question is whether or not the money you put into an IRA is deductible. The Internal Revenue Service says that a single taxpayer who earns less than $50,000 can deduct the full $4,000 contribution that is allowed for tax year 2006. Partial deduction is allowed on income up to $60,000.

A married couple can deduct their contribution on combined income up to $75,000. Partial deductions are allowed up to $85,000 for 2006. The income thresholds for single taxpayers and married couples increase slightly in 2007.

Don't forget, if you are older than 50, you are allowed to contribute an extra $1,000 to your IRA in what is being called a "catch up" contribution.

While the ability to deduct the amount you contribute to an IRA from your taxable income seems like a great deal, you may want to consider the long-term benefits of using a Roth IRA instead. In traditional IRAs, the growth of your investment is tax-deferred. That means that when you withdraw money from the account, it will be taxed as ordinary income. And when you die, your beneficiaries will still be on the hook for the appropriate taxes.

A Roth, on the other hand, does not provide the short-term benefits of a deductible contribution, but it gives you the super benefit of tax-free growth. If held for the required five-year period, there is no tax liability to you or your beneficiaries.

By the way, you may even want to ask if your employer provides a Roth 401(k). Your contribution is not deductible, but your long-term growth is tax-free.

As you might gather, my preference is tax-free over tax-deferred. If your employer doesn't offer a Roth 401(k), go ahead and contribute enough to earn any matching funds that your employer offers. Then make the maximum contribution to a Roth IRA. If possible, go back and max out the allowable amount into your 401(k).

George Chamberlin is a regular contributor to the North County Times, and also is a TV and radio commentator. Contact him at geoc1045@adelphia.net.