Increased Gifting Limits, More Updates For 2006

The IRS released further updates for 2006 today, updating various amounts that are supposed to increase each year based on inflation. One key change was an increase in the gift exclusion from $11,000 to $12,000.

The gift exclusion is the amount of money you can give to another person without affecting the amount you can leave tax free at your death. If you and your spouse both choose to each give the maximum of $12,000 to one of your children and their spouse, you can basically give $48,000 to a married child next year.

Other regular annual changes include increasing the standard deductions and widening each of the tax brackets, so that you can enjoy a little more income at each of the lower brackets.

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Retirement Contribution Limits for 2006 Announced

The IRS recently released the updated limits on contributions to retirement plans effective January 1, 2006. These limits define the amount you can contribute to a 401k or similar plan during a year. There are a lot of obscure amounts in their information, so we'd like to highlight the key numbers for you.

• Maximum contributions to a 401(k) plan - increases from $14,000 to $15,000.
• Additional contribution allowed for those over 50 - increases from $4,000 to $5,000.
• Total amount allowed to be contributed for an employee, including their deferral and company match - increases from $42,000 to $44,000.

The full details of the release can be found at this site. When it comes to retirement savings, I always like to remind clients that I've never run across anyone who complained about having saved too much. Consider increasing your savings, and you can probably save some tax at the same time.

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