Maximum Allowable 401(k) Contributions Change

Beginning in 2006, a 401(k) plan will be able to offer a Roth IRA feature with the same basic attributes as the current Roth IRA. But in the new 401(k) version, anyone, regardless of annual income, will be able to contribute, and the maximum contribution amounts per year will be much greater: $15,000 plus another $5,000 "catch-up" for anyone over 49 years of age.

The allowable contribution for 2005 is $14,000 plus another $4,500 “catch-up” for those 50 and older. In 2005 the maximum IRA (traditional or Roth) contribution also increases from $3,000 to $4,000 per person.

A 30 percent tax credit has been instituted for the purchase of qualifying residential solar water heating, photovoltaic equipment and fuel cell property. The maximum credit is $2,000 (for solar equipment) and $500 for each kilowatt of capacity (for fuel cells).

This credit applies for property placed in service after 2005 and before 2008.

In addition there is a new 10 percent personal tax credit for various energy improvements made to existing homes. The lifetime maximum credit per taxpayer is $500 and applies for property placed in service after December 31, 2005 and before January 1, 2008.

In 2006 elementary and secondary school teachers, counselors, principals, and aides will no longer be allowed a deduction of up to $250 per year for unreimbursed school expenses.