The Pension Protection Act of 2006 and What It Means To You
(November 22, 2006)
Sweeping changes have been happening, and with the signing of the Pension Protection Act of 2006 a few months ago, there are some IMPORTANT things for you to know. Included in the new tax act are IRA and plan provisions that create new retirement planning opportunities for everyone concerned about saving for their retirement.
Non-spouse Rollovers from an Inherited Company Plan are Permitted
Beginning in 2007, a non-spouse beneficiary (like a child or grandchild) or a trust who inherits your 401(k) or other company plan balance can transfer the funds directly to a properly set up inherited IRA that can be stretched over their lifetime. Previously, a non-spouse beneficiary who inherited a company plan would usually end up having to pay tax on all of those funds in a few years and the stretch IRA opportunity would be lost. The transfer must be done as a direct trustee-to-trustee transfer and it must go to a properly titled inherited IRA.
Charitable IRA Rollovers
In a nutshell, the new law provides an exclusion from gross income for people over 70 ½ for otherwise taxable IRA distributions of up to $100,000 per year from traditional IRAs and Roth IRAs for qualified charitable distributions made during 2006 and 2007. The big incentive is that the charitable donation from your IRA will satisfy your required minimum distribution. This can lower your income and possibly cut down the tax you pay on Social Security income.
Roth Conversions Directly from Company Plans
Beginning in 2008, you can convert company plan funds (like your 401(k) money) directly to a Roth IRA. You still pay tax on the funds converted and you still must qualify for the Roth conversion, but under the new Tax Increase Prevention and Reconciliation Act signed into law on May 17, 2006, beginning 2010 everyone qualifies for a Roth IRA conversion.
Tax Refunds can go to IRAs
When filing your 2006 taxes you can direct part or all of your tax refund directly to your IRA or Roth IRA. You no longer have to wait for your refund and then make your IRA contribution.
Please note that there are many rules and some deadlines for the above mentioned provisions. Feel free to give us a call if you would like to explore any of the above opportunities, or with any questions you may have.
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