Congress took an overdue step this summer to make sure the benefits in 30,000 pension plans promised to workers by U.S. companies will be shored up.

At the same time, this sweeping overhaul of retirement-plan rules, signed by President Bush in mid-August, made it easier for workers who don’t have pensions to contribute more to tax-advantaged savings and retirement accounts. The rule changes recognize an evolution in workers’ benefits: Pensions are being replaced by employer-sponsored plans such as the 401(k).

Many of the savings incentives for personal or workplace retirement accounts, and the popular 529 college-savings plans, were scheduled to expire at the end of 2010. Now, most of these enticements will be permanent, and nearly all contribution limits on IRA-type accounts will be indexed to inflation.

In effect, the new rules reward savers by giving them tax breaks worth billions. Better yet, these tax incentives will be permanent. 

529 plan incentives are permanent: Parents, grandparents and family friends who have put aside nearly $90 billion in state-sponsored 529 college-savings plans since 2000 can breathe a huge sigh of relief. Yearly growth of investments in these accounts will be permanently sheltered from taxes.

Even more important to most contributors, the rewrite of rules extends indefinitely a major incentive: Withdrawals that pay for higher-education expenses will be exempt from federal income tax. The fear that this benefit might disappear at the end of 2010 was a big concern of investors, in deciding whether to open an account or add money to an existing one.

In addition, the legislation extends the option that contributions can be made to both a 529 plan and a Coverdell Education Savings Account, for the same beneficiary in the same year.

 Contribution limits increase for IRA and Roth plans: The amount individuals can contribute each year to tax-deductible Individual Retirement Accounts and Roth IRAs will gradually increase. At present, the contribution limit is $4,000. The limit will move to $5,000 in 2008 and then increase each year to keep up with inflation. People age 50 and older will continue to be able to make “catch-up” contributions (the 2006 limit is $1,000) to these sheltered plans.

 More employers expected to offer the permanent Roth 401(k): These accounts, offered for the first time this year, are patterned after the Roth IRA: Already-taxed dollars are contributed, but withdrawals are tax-free. A person who is under age 50 can set aside up to $15,000 of income in either kind of 401(k) this year. Someone older than 50 could contribute an additional $5,000. Until now, employers have been reluctant to offer the Roth 401(k) feature as part of an existing 401(k) plan. Why?

There was no certainty Congress would make the Roth 401(k) permanent.

In contrast, when pretax dollars are contributed to a traditional 401(k), the worker’s current tax bill is reduced. Taxes come later, when required minimum distributions begin at age 70 ½.

A possible dual strategy: Always contribute enough to a 401(k) to lock in an employer’s matching dollars, then switch a portion or all of your additional contributions to a Roth 401(k) — if one is offered.

Low-income “saver’s credit” now permanent:   This tax credit,  worth up to $2,000 for individuals and families — to encourage retirement savings — was set to expire at the end of 2006. It was permanently extended and will be indexed to inflation in future years.

 Pension rewrite may boost charitable giving: One major provision of the pension-law overhaul is designed to encourage charitable giving. People over age 70 ½ with well-funded IRAs will be allowed to make tax-free “qualified charitable distributions” up to $100,000 a year from an IRA account. Donations must be made before the end of 2007. This type of IRA rollover by high-income donors must go directly to a charity. Moreover, the taxpayer will need to continue taking minimum distributions, which are taxed, from their IRAs.

Alert! There’s still time to capture $500 federal energy tax credit. If you’ve done calculations for installing energy-efficient windows, doors, central air conditioning, a heat pump or variable-speed air-circulating fan in your home before winter, don’t overlook the $500 federal energy credit that’s available for the 2006-2007 period. Products or improvements must meet certain performance and quality standards. An energy “credit” is much more important than a deduction because the credit can be subtracted directly from any taxes due.

If you have a Lessons Learned topic to suggest, you can call Gene Kelly at 421-2861, write to him at 2611 Bretigne Circle, Lincoln 68512, or e-mail him at ck62819@alltel.net.