Pension Protection Act of 2006

In August 2006, President Bush signed the Pension Protection Act of 2006. Included in this legislation are rules for IRAs, pension plans, retirement and savings incentives, and charitable donations. Many of the regulations of this act extend the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001. Below are a few highlights of the new act.

• In the past, employees had the option of enrolling in their company’s 401(k) plan. Now, companies will be allowed to sign-up all of their employees in a 401(k) plan, and employees will have to “opt-out” if they do not wish to take part in the pension plan.
  
  
• Up until now, a tax refund can be sent directly to the taxpayer or deposited into a savings or checking account. With the new law, a tax refund can also be deposited directly from the IRS into as many as three different IRA accounts.
  
  
• Beginning in 2008, for those leaving their place of employment, defined-contribution-plan funds can be rolled directly into a Roth IRA instead of having to first put it in a traditional IRA and then transferring that to a Roth IRA.
  
  
• The 2006 and 2007 maximum contributions to IRAs are $4000. The maximum contribution for 2008 will be $5000. After that, IRA contributions will be adjusted for inflation. The IRA “catch-up” provision for those over 50 remains at $1000.
  
  
• A non-spouse beneficiary will be able to roll over the interest of an inherited retirement plan, government plan, or tax sheltered annuity into an IRA without being taxed (except for normal distributions).
  
  
• Starting in 2007, when making a cash donation of any amount to a charitable organization, the donor must keep a bank record or written receipt if he/she plans to claim the donation as a tax deduction. However, the written confirmation does not have to be sent to the IRS, just kept in case of an audit.
  
  
• A donation can be sent directly from an IRA to a charity if the donor is over 70½ .
  
  
• The new law continues the provision for tax-free withdrawals from a 529 college savings plan.