Save More in Retirement Plans in 2006
The contribution limits for retirement savings plans will rise in 2006. For 401(k) and 403(b) plans, salary reduction SEPs, or 457 plans, you can contribute up to $15,000 in 2006. Those in SIMPLE plans can contribute up to $10,000 in 2006. Catch-up contributions also rise to $5,000 for retirement plans other than SIMPLEs and $2,500 for SIMPLEs. Overall contributions to defined-contribution plans cannot exceed $44,000 in 2006 (up from $42,000).

If you save in IRAs, the contribution level doesn’t change in 2006: You can still contribute up to $4,000. But the catch-up contribution increases to $1,000 (up from $500). That means if you are age 50 or older, you can contribute up to $5,000 to a traditional or Roth IRA.

Morningstar gives us a Planning Preview for 2006

Here's a timely article really geared for kids.  I've had two of my grandchildren here for the holidays.  It's been a lot of fun and naturally we've talked about trying to save some money.  I'm looking forward to 2006 and sharing information on finances and retirement.  Thanks for your thoughts and suggestions!  Again, Happy New Year!

■ Collect the state quarters. Thirty-five quarters down, 15 to go. The U.S. Mint will roll out five more in 2006 — Nevada, Nebraska, Colorado, North Dakota and South Dakota. If you haven’t already, buy a quarter-collecting map of the U.S. so your kids can display the coins. For an added challenge, try collecting each coin from the mints in Denver and Philadelphia. For more information on the U.S. Mint’s “50 State Quarters” program, go to www.usmint.gov .

There are several good options that are easy to set up and cheap to maintain, including the Simple IRA, Simplified Employee Pension IRA (SEP-IRA) and Solo 401(k).

These three plans all offer tax-deductible contributions, and money inside the plans grows tax-free until you take it out. But there are key differences -- most significantly, how much money you can put in and what happens if you add staff.

Heres's an article that talks about the basics.

The Wall Street Journal mentioned several new products that insurers plan to offer in the next year.

• "Shared care" features that will allow couples to piggyback off each other's policy should either run out of benefits.
• "Combination contracts" that marry a long term care policy with an annuity-meaning that money not used for long term care will be paid out as part of the annuity.
• More employer-sponsored policies.

These initiatives come as the costs of long term care-which include nursing-home and assisted-living  bills and the price of home health care-are increasing at a rate nearly double the that of overall inflation.  The average cost for one year in a nursing home is nearly $70,000, while the average hourly rate for a home-health aide tops $18 an hour, equivalent to more than $37,000 a year.  These costs are sharply higher in major metropolitan areas.  Traditional health insurance and Medicare generally do not cover these expenses.

Congress recently tightened eligibility for Medicaid coverage of nursing home costs.  That means more middle-class Americans will likely be on their own later in life when it comes to paying for long term care.

WSJ Dec 27 (Subscription Required)

MSN Money highlights the Roth 401k plans:

• Contributions are made through payroll deductions, just as in normal 401(k)s.
  
• But contributions do not reduce your taxable income.
  
• Like traditional 401(k)s, redemptions from the account can start at 59 ½, or after retirement, which ever comes later.
  
• Required minimum distributions begin at 70 1/2, unless the money is rolled into a Roth IRA, which doesn’t require minimum distributions and can pass to heirs.
  
• Any matching employer contributions are funneled into a traditional 401(k).
  
• You can split your contributions between traditional and Roth 401(k) accounts.
  
• But you can’t move money between the different 401(k) types.
  
• Your employer decides which investment options are available to you (unlike a Roth IRA, in which you pick whatever you like).
  
• The Roth 401(k) will sunset after 2010 unless extended by Congress, with no new contributions allowed.

Over the last five years, the amount of tax that Social Security beneficiaries have paid on their benefits has jumped by nearly 28 percent, from $12.3 billion in 2000 to $15.7 billion last year, according to the latest annual report of Social Security's board of trustees

The Providence Journal explains.

This is the perfect week to contact your company human resources department, and boost your 40l(k) contributions to the maximum possible out of your last paycheck of the year.

Sure, you'll miss that money in January when the bills for all your shopping come due. But in 10 or 20 years, you'll realize that this was the best gift you received or gave.

Terry Savage offers some great advice on the 401k.

MSN Money article on taking Social Security benefits.  Scott Burns believes waiting to take benefits is your best strategy.

For anyone born in 1943 or later, Social Security benefits will increase by 8% for each year of deferral. In addition, the benefits will increase by the cost-of-living adjustment that all recipients get.

USA Today provides info on these new plans.

Most companies aren't ready to offer the plans right away.   That gives you time to learn more about these plans and whether they're a good choice for you.

Here are some answers to questions about Roth 401(k)s:

•How much can I save? The maximum contribution levels are the same for traditional and Roth 401(k) plans.

In 2006, workers under age 50 can contribute up to $15,000 to a 401(k) plan. Workers age 50 and over can contribute up to $20,000 next year.

•Can I invest in a regular 401(k) and a Roth 401(k)? Yes, as long as you don't exceed the contribution limit. For example, you could contribute $7,500 to a regular 401(k) and $7,500 to a Roth 401(k).

Vanguard Funds  details how participants in their 401k plans invest.

Across the universe of Vanguard participants, 63% of eligible employees chose to enroll in their employer's voluntary savings program.  This broader measure of plan participation has remained basically unchanged since 2000. 

Vanguards participants' median account value was $23,811 at year-end 2004.  The median balance represents the typical participant, as it reflects the balance of the middle or 50th percentile participant.  Half of all participants have balances above the median; half have balances below.

This is a very interesting report (over 50 pages), we'll be giving some more data later this week.

More companies are freezing or terminating these retirement plans,  USA Today  reports.

In 2004, 71 companies in the Fortune 1,000 that sponsored traditional pensions froze or terminated their plans, according to a study released earlier this year by Watson Wyatt Worldwide, a human resources consulting firm. That represents an increase from 45 companies in 2003 and 39 companies in 2002.

When companies freeze a plan, they keep it in place but halt future benefits that would have been earned. Terminating a plan involves closing it down. More companies are also not offering pension plans to new hires.