By Tom W. Anderson, CEO & Founder
PENSCO Trust Company, San Francisco CA

Sounds like a question with an obvious answer, but today, the rationale for saving more is more compelling than ever before. Maybe you’re skeptical. A quick topical example might help. Do you know who Elsie McClean from Chico, California is? She now holds the record for a hole-in-one. Not for distance though; for age. She is the oldest person to hit a hole-in-one. When you get to her age, it is no longer a secret — she’s 102.

If she retired at 62, she had to have enough saved to last her 40 years. Here’s to hoping we all last that long. But what if we did? How would we sock away enough to avoid running out of money? Clearly Elsie did something right, and if I was her financial planner I’d make a lot of hay with her success. After all, she apparently can still afford the greens fees!

We all know about tax-deferred compound growth and to the best extent possible we should put some home-run investments into our retirement accounts so that compound growth is maximized. At the minimum, we should maximize our contributions and minimize our distributions, so that our savings continue to grow tax-free or tax-deferred as long as possible. Here are my 2006 tax tips for helping you and your clients to do so:

1. Be sure to fund your annual 2006 IRA or Roth IRA contribution postmarked no later than April 17th, 2007(this year’s deadline). The contribution limit is $4,000 ($5,000 if over age 50).

2. Consider funding your 2007 IRA and Roth IRA contributions at the same time since the sooner you start your tax-deferred or tax-free saving, the better (contribution limit is $5,000 for 2007 if over age 50).

3. Be sure to fund your SEP IRA or Solo(k) contribution for 2006 by April 15th or your company’s tax filing deadline (including extensions up to October 15, 2007). The maximum contribution is $44,000 for 2006 and $45,000 for 2007. Solo(k) has an additional catch-up contribution amount for those over age 50 of $5,000 for both years and a total contribution limit of $45,000; of which $15,500 can be salary deducted ($15,000 for 2006).

4. Be sure to get your children started in saving for retirement by helping them fund a Roth IRA by April 17th up to $4,000 ($5,000 if over age 50) or the amount of their earned income in 2006m — whichever is less. So, if they worked in the summer and they reported it, you can contribute for them even thought they spent the money on their new drum set. Remember, in the unlikely event that your children (just like you) earn more than $100,000 MAGI (modified adjusted gross income), they will not be eligible for a Roth contribution. Remember to set your alarm for January 1, 2010, when everyone can convert a traditional IRA (that your fund today–2009) to a Roth IRA, regardless of your income. The after-tax conversion will grow tax-free for the rest of your and your children’s lives!

5. Be sure to fund your child’s or grandchild’s education savings account by April 17th for 2006 (maximum contribution regardless of child’s income is $2,000). There is a phase out on the contributor’s contribution limit based on their income. At $110,000 (individual filing) and $220,000 (married couple) you cannot contribute at all.

6. If you haven’t read Pat Rice’s “IRA Wealth” book, go out and buy it (try your bookstore, www.iraresource.com or Amazon.com). If you are a professional, buy a dozen, keep a supply, and give them out to your good customers who will thank you for opening their eyes to the possibilities with self-directed IRAs.

7. If you have old IRAs, SEP IRAs, money purchase pension plans, 403(b)s, 401(k)s, certain defined benefit plans (e.g., government employee plans) lying around, and you are eligible for a Solo(k), and then consider rolling them over to a PENSCO Trust Solo(k) to get tax-free or tax deferred growth on leveraged real estate investments through your Solo(k).

8. If you participate in a traditional 401(k) plan, do some spring cleaning to be sure that your investments are properly allocated in the available investment options and that you are at least contributing up to your corporation’s matching contribution amount.

9. Many people mistake their participation in pension plans such as 401(k)s as an obstacle to funding an IRA or Roth IRA contribution. There is a phase out, based on income, that limits your ability to claim an IRA deduction on your tax form, but not your ability to contribute. You can always fund a traditional IRA in addition to any pension plan participation without regard to your income. You cannot claim a deduction for a traditional IRA contribution if you exceed the following limits for 2006:

• More than $75,000 but less than $85,000 for a married couple filing a joint return or a qualifying widow(er)

• More than $50,000 but less than $60,000 for a single individual or head of household

• Less than $10,000 for a married individual filing a separate return

The limits increase in 2007 to:

o More than $83,000 but less than $103,000 for a married couple filing a joint return or a qualifying widow(er)

o More than $52,000 but less than $62,000 for a single individual or head of household, or less than $10,000 for a married individual filing a separate return

For 2007, if you are not covered by a retirement plan at work, your deduction for contributions to a traditional IRA may be reduced (phased out) if you either live with your spouse for any time during 2007 or file a joint return for 2007. If you either live with your spouse or file a joint return, and your spouse is covered by a retirement plan at work but you are not, your deduction is phased out if your AGI is more than $156,000 but less than $166,000. If your AGI is $166,000 or more, you cannot take a deduction for contributions to a traditional IRA.

10. If you have made a contribution to an IRA or Roth IRA in excess of the limits, you need to remove it by April 17th to avoid a 6 percent excise tax on the excess contribution amount plus any earnings on that amount

11. Yes, I know I said ten, but if you like these, send them to your friends and family.