Consumers have every right to be leery when it comes to investing: We’ve experienced wild swings on Wall Street, massive Ponzi schemes, bankrupt pensions and a frail Social Security program—all within the last couple of years.

If you don’t want to work up to your dying day, it would behoove you to establish a good plan for saving for retirement, and know the tax consequences of your decisions.

Remember your mom’s advice of, “Don’t put all your eggs in one basket”? That’s good retirement advice, too. In a world without true investment security, asset diversification is one of the best ways to ensure a positive cash flow after leaving the work force.  

For workers with a work-sponsored 401(k) plan with a matching benefit, contributions are excluded from income for income tax purposes. For 2012, you can shelter up to $12,000 in a qualified 401(k) plan.

If you don’t have an employer-sponsored retirement plan, you can open an IRA or Roth IRA account to build up a nest egg. You can shelter up to $5,000 ($6,000 if you are over age 50) per year in a traditional IRA. There is a 10% penalty for early withdrawal before the age of 59 ½ . But some exceptions apply. There is also a penalty for excess accumulations, that is, if you do not take the required distributions by April 1 of the year after the year in which you reach the age of 70 ½ .

You cannot take a deduction for contributions made to a Roth IRA. By the same token, earnings grow tax free, and distributions taken during retirement are not taxable. In order to fund a Roth IRA, your compensation must be less than $179,000 (married filing joint), $122,000 for single, married filing separately or head of household. If you are married filing separately and lived with your spouse at any time during the year, you cannot have earned more than $10,000.

If you are self-employed, you can fund a traditional IRA, a Roth IRA, a SEP IRA, a SARSEP, a SIMPLE, KEOGH, or a one-person 401(k). The amounts that can be sheltered vary, so check with an investment advisor to find out which plan is best suited for you.

Note that if you make $28,250 ($42,375 if head of household; $56,500 if married filing jointly) or less, and are older than 18, not a dependent and not a student then you may enjoy a tax credit for funding your retirement account. Check out Form 8880 and Instructions on the IRS website for more information and the formula for calculating the amount of the credit.

These are conventional vehicles for sheltering and growing retirement income. Because plans and rule vary, be sure to discuss your plan’s requirements with a competent plan administrator. It’s also important to take an interest in what types of stocks or other vehicles your retirement funds are invested in, and understand the risks.

The Great Recession drained many consumers’ retirement funds. “If a taxpayer loses money on his or her retirement account, whatever is withdrawn from that account is taxed at their normal income tax rate. Taxpayers do not get to write off their losses as the money grew tax deferred. If they were able to write off the losses, that would be double dipping,” says Brett Goldstein,  a pension administrator and President of The Pension Department in Plainviw, N.Y.

While the housing market is still struggling to recover, homeowners who were able to take advantage of low housing prices could be able to use the equity later in life, or sell it at a profit when it’s time to downsize. If you own your own business, you may be able to sell it at a tidy profit and enjoy income. Of course, any increase in equity to your home or business is not sheltered from taxes but they can still be viable sources of income during retirement.

One of my clients invested in silver bars way back in the day. He retired a couple of years ago. Every year he sells one of the bars to supplement his income. Of course, he must pay capital gains taxes on the profit he makes. But note that the 15% capital gains rate is nominal compared to ordinary income tax rates that can top out at 35%.

A stock portfolio outside of an IRA with long-term growth in mind is also a viable retirement vehicle. Of course you will pay taxes on dividends earned over the years. As you cash out stocks during your retirement years you will pay capital gains rates rather than ordinary income tax rates on the difference between your cost basis and the selling price. This could prove advantageous tax wise. However, tax law changes constantly. There is a very good chance that the capital gains rate will go away and these types of investments could be taxed at ordinary income tax rates.

Bonnie Leehttp://global.fncstatic.com/static/v/all/img/external-link.png is an Enrolled Agent admitted to practice and representing taxpayers in all 50 states at all levels within the Internal Revenue Service. She is the owner of Taxpertise in Sonoma, Calif., and the author of Entrepreneur Press book, “Taxpertise, The Complete Book of Dirty Little Secrets and Hidden Deductions for Small Business that the IRS Doesn't Want You to Know.” Her new e-book Taxpertise for the Creative Mind Murder, Mayem, Romance, Comedy and Tax Tips for Artists of all Kinds is available at all major booksellers. Follow Bonnie Lee on Twitter at BLTaxpertise and at Facebookhttp://global.fncstatic.com/static/v/all/img/external-link.png