You have to know your (tax) limits.

PositionTax and retirement planning

For people who can afford to sock away money in their retirement accounts, the decision of how much to put in often comes at the last minute, meaning at year-end or just as they are filing their taxes. However, it is very important to keep track of contribution limits on a yearly basis so you can plan ahead to have the money available, according to the Financial Planning Association, Denver, Colo.

With the passage of the Pension Protection Act of 2006, the government will lift expiration provisions that would have limited contributions on many of these accounts over the long term. Now, taxpayers will be able to save more at a time when most financial specialists say the nation's retirement nest egg is way too low. Here are the contribution limits currently allowed for tax year 2006:

401(k) contributions. The new pension law makes permanent higher contribution limits that were to have expired in 2011. That means the current annual contribution limit on 401(k)s, now at $15,000--and adjusted for inflation next year to $15,500--will not fall back to $13,000 as originally planned. That potentially could lead to hundreds of thousands of dollars of difference in final savings.

Solo 401(k) contributions. These are designed for individual business-people. Employees may be allowed to contribute up to $15,000 of their income and additional profit-sharing contributions as long as total contributions do not exceed $44,000 for the 2006 plan year. That limit--which applies to all defined contribution plans--rises to $45,000 in 2007.

403(b) contributions. Up to a maximum of $15,000 in 2006 and $15,500 in 2007.

Traditional and Roth IRA contributions. In 2006, the maximum individual contribution will be the smaller of the following amounts: $4,000 or your taxable employment compensation for the year. For 2006, if you are a taxpayer who is an active participant in a retirement plan at work, the ability to deduct your contributions to a traditional IRA will be phased out if your Modified Adjusted Gross Income (MAGI) is more than $75,000 but less than $85,000 for a married couple filing a joint...

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