Your Retirement, Taxes and Pension Law

In 2006, the Pension Protection Law was enacted. The law encourages contributions from taxpayers and penalizes companies that underfund their pensions. Some of the changes have affected taxpayers of all ages, regardless of their retirement status. This is some of what happened.

The IRS now allows tax refunds to be directly deposited into IRAs.

Now you can make withdrawals from 529 college savings plans without tax penalties. This was enacted as part of the Pension Protection Act to help cash-strapped parents not tap into their IRAs.

Contribution levels for employer-sponsored retirement accounts have been increased to $5,000 annually.

When an employee leaves a job, they can now roll over their employee-sponsored retirement accounts directly into a Roth IRA. Previously, they were required to withdraw their employer-sponsored retirement accounts and pay the tax penalty before moving to the Roth IRA.

Charitable donation regulations have been increased, making it more difficult for donors to seek deductions for charitable donations. Taxpayers must now complete a form detailing non-monetary charitable donations. Any appliance that is donated to charity and is worth more than $500 must be appraised before the deduction can be taken. Monetary donations of any amount now require documentation such as a receipt, canceled check or credit card statement. Donors age 70½ and older can make charitable contributions directly from an IRA account for the next two years. This change will benefit many older taxpayers who take the standard deduction. Since the donation comes directly from an IRA account, it will not be considered income. This is helpful because taxpayers generally can’t donate more than 50% of their income.

Business owners can enroll employees in 401Ks automatically, although the employee can choose not to.

Employees can receive investment advice on their 401K. This is done because some 401K depositors may want to participate in riskier investments to earn higher rewards.

Two new provisions allow non-spousal benefits. A non-spousal transfer allows retirement benefits to be transferred to a named beneficiary instead of a spouse. A hardship distribution also allows for the emergency distribution of funds from a retirement account to help with medical or financial emergencies for a designated beneficiary who is not a spouse or dependent.

You should be aware of these changes and how they affect your personal retirement savings. Before taking any action based on these changes, it is a good advice to consult with a financial planner or your attorney. These are your retirement accounts we’re talking about and their future depends on them being properly managed and coordinated.