Have one's cake and eat it too

I have a personal testimony on how the tax laws can work in ones favor if certain circumstances are met.

Here is my story; My wife and I have lived in our current house in North Seattle for 32 years. I remember this year vividly because the first project I took on the house was re-roofing it. While on the roof I heard on the radio that "Elvis" had just died. Okay, on with the story.

In these 32 years we have heated our house with oil. We keep our house at a pretty low temperature in the heating season so the consumption of oil is pretty low but in 2008 when we filled the tank at the height of excalating oil prices, the cost of oil was at $4.50 per gallon. I began thinking about alternative energy options. I first thought about geothermal but it is too costly in a confined space where deep holes would have to be drilled.

The next option was looking at solar. You are probably questioning me given Seattle's propensity for lack of sunshine but after doing some research I found that Seattle has 70% of the capacity as Los Angeles. I put it on the back burner until a couple weeks ago after the record setting 103 degree temperature. It was time to revisit solar energy. I contacted a solar energy expert and he provided me a quote that would provide enough energy from solar to be energy neutral. I really liked that idea because I am also pro envirnoment. The solar panels would produce enough electricity to offset the amount we use (during summer when we will produce more electricity than use, we can sell it back to the city and state) and different solar system would provide hot water. The quote included a heat pump to replace the oil furnace plus provide air conditioning in the rare hot days here in Seattle.

The quote was way above my budget but the energy expert provided me some interesting information about the change in the tax laws that just went into effect this year. The new law provides for a 30% tax credit, with no limit, for the cost of installing alternative energy systems; geothermal or solar. Amazingly with the 30% tax credit I am now within budget. There is also an additional $1,500 tax credit for the heat pump. As you know a tax credit comes directly off of income taxes due.

Okay, this is great but how am I going to pay for it? I am over age 59 1/2 so I can take "In Service" withdrawals from my retirement plan (4o1(k)/403(b)) with no penalty. I just have to pay ordinary income taxes on the amount withdrawn. But wait I get a 30% tax credit for going green with the solar energy system. This credit more than offsets the additional taxes I will have to pay with the "In Service" withdrawals. What a deal, the tax laws actually helps me!

The possibility are even greater in 2010 when Roth IRA conversions will be allowed for everyone, no income limitations. If you are looking to go green, want to do a Roth IRA conversion then the tax codes are in your favor to accomplish two things at once with little taxes due. Of course you still have to come up with the money for the installation.

I can taste that cake now. The installation starts next week.