In 2006, the Retirement Protection Act was signed into law. The law encourages taxpayer contributions and penalizes companies that fall short on their pensions. Several changes have affected taxpayers of all ages, regardless of their retirement status. Here’s some of what happened.
The IRS now allows tax rebates to be deposited directly into an IRA.
You can now make withdrawals from 529 college savings plans without the tax penalty. It was enacted as part of the Retirement Protection Act to help cash-strapped parents make the most of their IRA.
The contribution rate to an employer-sponsored retirement account was increased to $5,000 per year.
When an employee leaves a job, they can now roll their employee-sponsored retirement account directly into a Roth IRA. Previously, they were required to cash out of their employer-sponsored retirement account and pay tax penalties before switching to a Roth IRA.
Charitable giving regulations were increased, making it more difficult for donors seeking deductions for charitable giving. Taxpayers must now complete a form detailing the awarding of non-monetary charitable gifts. Any household items donated to charity and valued above $500 must be appraised before deductions can be taken. Cash donations of any amount now require documentation such as receipts, canceled checks or credit card statements. Donors aged 70 ½ and over can make charitable contributions directly from the IRA for the next two years. This change will benefit many older taxpayers who take the standard deduction. Because the donation comes directly from the IRA, it will not be considered income. This is especially helpful because taxpayers usually cannot contribute more than 50% of their income.
Business owners can automatically sign up employees for the 401K, though the employee can opt out.
Employees can receive investment advice on their 401K. This is done because some 401K depositors may want to participate in risky investments to win bigger prizes.
Two new provisions allow for non-spousal benefits. Non-spouse rollover allows retirement benefits to be shifted to a designated beneficiary, not the spouse. Hardship distributions also allow emergency distributions of funds from retirement accounts to be used to assist with medical or financial emergencies of designated recipients who are not spouses or dependents.
You need to be aware of these changes and how they will affect your personal retirement savings. Before taking any action based on these changes, it is a good idea to consult with your financial planner or attorney. It is your retirement account we are discussing and your future depends on proper management and coordination.
