Undisputed 401(k) benefits often unheeded by workers. (Investment & Finance).

THERE must be a reason why April Fool's Day and the income tax-filing deadline are so close together.

If you're still fussing over every last deduction for your tax returns, you can be fooled into believing that the most potent tax breaks are from itemized deductions such as mortgage interest and property taxes.

One of the most lucrative savings opportunities you'll ever receive is investing in your tax-deferred retirement plan. Uncle Sam won't impose federal income taxes until you take the money out in pretax plans like 401(k)s. You get a generous break on money that works for you.

Millions of Americans forgo this bonanza, however. Only an estimated 54 percent of workers contribute to their employer's retirement plans, according to the Employee Benefits Research Institute, a nonprofit research organization.

Tax deferral is a powerful tool to build wealth. Assuming you had a $50,000 retirement kitty and invested in a taxable vehicle at 8 percent, were in the 27 percent federal tax bracket and 8 percent state bracket, you would have $137,811 after 20 years, according to http://www.choosetosave.org.

Invest that $50,000 in a tax-deferred vehicle such as a 401(k) and you would have $233,048 after two decades. You gain almost $100,000 just by investing in a tax-deferred vehicle.

No need to take tax bit

Yielding to temptation, it's far too. easy to regard money in a retirement plan as liquid savings you can tap any time. Once you take the money out of a tax-deferred plan, however, the tax laws bite you hard.

Tanya Krochta, 39, who worked in human resources for a now-defunct Manhattan clothing manufacturer, is in the process of transferring her 401(k) assets from her former employer to a rollover IRA.

A rollover IRA is a vehicle that receives 401(k) funds. If you transfer your retirement money directly from your employer into a rollover IRA, you pay no taxes or penalties. Should you cash out your retirement funds in a lump sum, you owe the IRS a 10 percent penalty plus state and federal income taxes.

Krochta, whose husband also worked for the company and moved his 401(k) funds into a rollover IRA, recalls advising several younger fellow employees over the years to avoid taking lump sums.

Unfortunately, Krochta's advice to keep retirement money in a tax-deferred account is ignored by most employees.

Research from Hewitt Associates, an international benefits consultant, shows some 68 percent of 401(k) plan participants take lump-sum payments when changing jobs. A scant 26 percent roll over their retirement money into a new employer's plan.

By taking the money now, not only do taxes devour up to half your money, your annual retirement income will be cut. Someone who would have received $3,000 a month may end up with only $1,000, according to a U.S. Department of Labor study.

Contributions also a tax gift

Another smart tax move is to make the largest-possible retirement plan contribution.

Say you're making $50,000 annually, have $5,000 in your 401(k) now and contribute $5,000 a year, or 10 percent Your employer matches half of your contribution and you earn 8 percent on that money. Your funds are eroded by a 3 percent inflation rate as the cost of living rises.

According to the Bloomberg.com 401(k) calculator, in the first year, you would have $13,248.08, which includes $2,500 employer contribution. At the end of 20 years, you would have $485,857, assuming 3 percent annual salary increases. Every time you get a raise, your 401(k) contribution and employer match also nses.

This is automatic, tax-deferred savings. You don't even have to think about it.

The news gets better: Congress has bumped up the amount of money you can contribute to retirement plans:

* You can invest $11,000 in 2002 into 401(k)s and similar plans and an extra $1,000 if you are over 50 years of age.

* The self-employed can contribute up to $35,000 in their Keogh or SEP-IRA plans up until April 15.

* The Keogh/SEP-IRA limit goes up to $40,000 or 25 percent of compensation for 2002, up from 15 percent in 2001.

Under the current tax law, employers will be able to cash out your retirement plan if you leave their employment and your plan balance is under $5,000. If you have moved on, make sure you do a rollover to avoid the tax wallop.

Washington's generosity on these retirement-plan breaks may be finite. Incentives for retirement plans end on Dec. 31, 2010. Congress may not renew these breaks if the economy is in bad shape in 2011.

As they say at the old ballpark, Get 'em while they're hot."

RELATED ARTICLE: Mixed Outlook For Stocks

THE stock market's first-quarter performance was flat as Nebraska and Kansas when a steamroller has just passed over them.

The Standard & Poor's 500 Index, used by many professional mangers as the chief gauge of the overall equity market, slid .06 percent based on price changes alone. If you throw in dividends, it gained .27 percent.

I expect the S&P 500 to gain about 5 percent in the final three quarters of the year to close around 1,200. I expect the Dow Jones Industrial Average to. rise about 1 percent from its first-quarter close to reach 10,500 at year's end.

Low interest rates, an improving economy and gradually increasing corporate earnings should help the market. Yet stock prices will likely be kept in check by high valuations and debt levels among both consumers and corporations.

The Dow advanced 4.3 percent on a total-return basis in the first quarter, led by companies whose earnings rise and fall with the economy. While it's the dean of market averages, the Dow represents only a narrow slice of the market.

The Nasdaq Composite Index of more than 4,000 stocks by contrast, lost 5.3 percent in the first quarter Its decline followed plunges of 39 percent in 2000 and 21 percent in 2001. I think the woes reflect the fact that excesses of the many large technology stocks that dominate the index still haven't been fully wrung out.

Continuing what I regard as a pleasant trend, small stocks generally beat big stocks in the quarter, The Russell 2000 Index of small-cap stocks climbed 4 percent on a total-return basis, while the S&P 100 Index of large stocks lost .8 percent.

Value stocks performed better than growth stocks, as seen with the Russell 2000 Value Index gaining 9.1 percent in the quarter, as the Russell 2000 Growth Index dipped 2 percent.

I believe this a continuation of the return of value stocks to the top of the performance hill following the extraordinary gains in growth stocks in the late 1990s. I expect value to stay top several years.

John Dorfman, Bloomberg News

John F. Wasik author of "The Bear-Proof Investor," is a columnist with Bloomberg News. Benjamin Mark Cole is on vacation.