Scott On Money

The maximum contribution limit for both traditional and Roth IRAs in 2006 is $4000. Of course with the IRS there are always exceptions. You can’t exceed your income. You can contribute and extra $1000 dollars if your over 50 (not all the exceptions are bad!).

A lot of people are precluded from using IRAs because of there “high” incomes. If you have an income over $50,000 a year or you already have a retirement plan from work check out the more detailed limits and phase outs that apply in these cases.

Find out how much you can contribute and make very effort to get this money put away to save a tremendous amount of tax expense.

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In 2006 you can contribute up to $15,000 to your 401k. Be careful as all the usual government caveats and restrictions apply.

One additional note for those of you in the age fifty and older club is that you may be eligible to contribute and extra $5,000 as a catch up contribution.

As the tax year comes to an end make sure you are at least taking advantage of your employer match. If you managed to max out your 401k then congratulations, that was hard but fruitful work. Taxes are the biggest expense for most people, setting aside $15,000 tax free is a phenomenal accomplishment.

For more details checlk out the IRS site.

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In recent days I’ve been seeing Christmas items appear in stores. I think it is too early to do my Christmas shopping, but not to reduce my biggest annual expense, taxes.

Since taxes are probably your biggest expense too I’d suggest making sure you are maxing out your 401k or other retirement plan before the end of the year. Your retirement contributions generally give you an instant 15-35% boost because of their pre-tax status.

If you haven’t been contributing you may not be able to reach the IRS annual maximums by the end of the year. Ask your plan administrator if you can over contribute to the plan for the last few months to make up the difference. Not every plan allows this but I had one lucky year were I was cash strapped for the first half of the year but was doing well in the second half. I talked to the hr department and they let me contribute double their monthly maximum so I could hit the yearly IRS maximum.

Go ahead, maximize your retirement investment and give yourself a great Christmas present in October.

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When you leave a company with a 401k plan you have to decide what to with that money.

You could leave it where it is. This may not be your best option. I've rarely heard of 401k plans with a great choice of low fee, high performance funds.

You could roll it over into a 401k with your new employer. If the new employer has a great selection of low fee, high performance investments that you like there is no harm. Again, I haven't heard of very many cases like this.

You can also roll your 401k over into an IRA. This is what I have done. This lets me choose what company I'm dealing with and allows me to invest in a very broad range of mutual funds and stocks. I like the flexibility and good performance this option gives.

If you do elect to roll over your account to an IRA make sure you roll it over to a new IRA account and you don't put any other IRA contributions into that account. Why? If you do this you are likely eligible to roll this money back into a 401k at a later time. You may decide to do this because some 401k plans allow you to borrow against your plan. This can come in handy in certain situations like dealing with a significant health problems or paying your children's college bills.

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