Most investment portfolio's have done pretty well this year-domestic index funds, international, reit, commodity.  You get the idea, your portfolio has probably gone up in 2006.  If you've sheltered that money in a 401k, 403b or IRA account-your tax bills have been minimized.  I guess the challenge is to get money into those accounts.  It's been tough...once again we're just not saving very much in this country.  I hope all of us can do a little better next year.

That’s because, increasingly, Americans have no savings set aside for rainy days.

For only the second time in the nation’s history, U.S. personal savings rates as a whole fell below zero in 2005 and has flirted not much above zero since then, according to the Bureau of Economic Analysis.

If you've ever received information on your company pension-you may have seen a term in the fine print, "social security integration".   This will impact your pension payout and according to the AARP, half of employers that provide pensions use this calculation.  The AARP explains "social security integration" and other pension facts.

The first phrase you need to commit to memory is "Social Security integration." Yeah, it's a doozy. Say it out loud several times so you don't forget. The phrase signifies that your company uses a tricky formula to calculate your pension that in effect mingles projected Social Security earnings with your company benefit to make your future look rosier than it really is. "It can be completely devastating," says Hotz. For example, if your pre-retirement company statement tells you you're going to get, say, $1,000 a month as a pension, and Social Security tells you you're going to get $1,000 a month, you may logically conclude that you'll get $2,000 a month to live on. Instead, with Social Security integration, you could be looking at $1,500, since pension pay is reduced by up to 50 percent of the amount of Social Security you receive. About half of all companies use Social Security integration.

The Internal Revenue Service (IRS) has devoted a web page to information relating to the Pension Protection Act of 2006 (PPA), including links to a chart of PPA provisions, published guidance on certain provisions, and newsletter articles.

The Tax Relief and Health Care Act Of 2006 allows a transfer of an IRA into a Health Savings Account (HSA).  This is a completely new twist on IRA distributions and we'll provide some updates on this brand new legislation which was just signed today.  BenefitsLink provides updates on Health Savings Accounts.

President George W. Bush signed the Health Opportunity Patient Empowerment Act of 2006 today, enhancing Americans' access to tax-advantaged health care savings. The law, part of the Tax Relief and Health Care Act of 2006, provides new opportunities for health savings account (HSA) participants' to build their funds.

One-time transfer from IRAs to HSAs.  The new rules allow for a one-time contribution to an HSA of amounts distributed from an Individual Retirement Arrangement (IRA).  The contribution must be made in a direct trustee-to-trustee transfer.  The IRA transfer will not be included in income or subject to the early withdrawal additional tax.  The transfer is limited to the maximum HSA contribution for the year, and the amount contributed is not allowed as a deduction.  Generally, only one transfer may be made during the lifetime of an individual.  If an individual electing the one-time transfer does not remain an eligible individual for the 12 months following the month of the contribution, the transferred amount is included in income and subject to a 10 percent additional tax.

We all need a reality check sometimes-especially when we approach retirement.  Many of us will be without a pension, need long-term care and may not have the savings we really need to support 20-30 years in retirement.  The Wall Street Journal explains some of the lies we tell ourself.

"I'm going to get a pension-and it's safe."

Research published earlier this year by the Employee Benefit Research Institute found that 61% of surveyed workers anticipate receiving money from a pension in retirement. But only 40% of working couples currently are covered by such plans. And even though more and more companies, including giants like General Motors Corp., International Business Machines Corp. and Verizon Communications Inc., are cutting or freezing benefits, almost 70% of workers in the same survey said they were very confident or somewhat confident about their financial prospects in later life.

We received a lot of e-mails this past week regarding a feature of the new Pension Protection Act allowing you to donate from your IRA account.   Sorry, you have to be at least 70 1/2 for these "qualified charitable contributions".  The Washington Post explains charitable giving from the IRA.

The day after someone turns 70 1/2, he can donate up to $100,000 in what would have been taxable income from an individual retirement account without having to pay tax on that money. The recipient must be a public charity, not a private one such as a family foundation. The gift must be made directly from the IRA to the charity; it may not pass through the account holder's hands, because if it does -- even for a second -- the money will count as income. Although the donation does not count as taxable income for the year, the money can be counted toward the amount a person must withdraw each year after the age of 70 1/2 from a traditional IRA to avoid penalties.

I've read some recent articles indicating investors have been disappointed by the results of the retirement planning calculators that are springing up on mutual fund sites.  Young investors especially have seen projections that require them to save millions for a comfortable retirement.  It probably can be a bit overwhelming when starting your first job or contributing to a new IRA. 

However, here's some math...you really can shelter a substantial amount in your retirement plan and IRA and give early retirement a good shot.  The Motley Fool explains.

For many of us younger than 50, in 2007 the annual contribution limits for our 401(k)s and IRAs will be $15,500 and $4,000, respectively. If you're married and both you and your spouse work, that's $39,000 you can sock away next year across those two plans. If you both happen to work for companies that match your 401(k) contribution at $0.50 for every dollar, that's another $15,500 that could be socked away on your family's behalf.

More year-end tax tips.

In 2006, people who make energy-saving improvements to their home can claim tax credits from $50 to $4,000, as long as the work is on their primary residence and it's in the United States.

A taxpayer can claim a credit of 10 percent of the cost -- up to $500 -- of installing energy-efficient insulation or exterior windows that qualify under IRS rules. And taxpayers can claim credits from $50 to $300 -- again up to $500 total -- for other improvements, such as a $150 credit for installing an energy-efficient gas, propane or oil furnace, and another $150 credit for an energy-saving water boiler. No more than $200 of the $500 maximum can be for window improvements.

2006 Tax Tips from the Washington Post.

Health Savings Accounts (HSA) have gotten a lot of attention lately.   A few employers offer these accounts and more will probably adopt these high-deductible health care plans to help reduce costs.  We've noticed a lot of banks are allowing individuals to purchase these accounts. 

To qualify to open an HSA you'll have to enroll in a high-deductible health plan.  Kiplingers provides some Health Savings Account basics.

How much can I contribute annually to an HSA?

You can contribute in 2006 the amount of the deductible, up to $2,700 for singles and $5,450 for families, each year to your HSA. And if are 55 or older, you can put in an extra $700.

In 2007 you can contribute up to $2,850 for individual coverage or $5,650 for families (people age 55 and older can make an extra catch-up contribution of $800 in 2007).

When you hear the words lump-sum..it sounds big.   It sounds like a pension or retirement plan that could last for years. 

USAToday explains the "lump-sum illusion" and how important it is to look at our withdrawal rates from retirement plans.

As 79 million baby boomers march into retirement over the next two decades, they risk falling into a trap that Olivia Mitchell, a professor at the Wharton School of the University of Pennsylvania, calls "the lump-sum illusion."

"People look at their 401(k) sum and think, 'I have $100,000 or $1 million; I'm rich,' " Mitchell says. "The danger of the lump-sum illusion is that people don't understand how expensive it is to get old, and they withdraw too much."

Many of us have been out shoveling snow this week.  I just glanced at a weather map and it looks cold across most of the nation.  So, looks like snowbirds will be hitting the road.   Here's one retiree destination with some warm winter days-Quartzite, Arizona.