Last week President Bush signed the Pension Protection Act of 2006 in to law. This law changes some of the existing laws for savings and retirement. From both an employee and employer standpoint.
The changes include:
1) Permanent Incentives for Retirement. The act makes permanent increases in retirement plan and IRA contribution limits, catch up provisions for age 50+ workers, and the new Roth 401(k). It also allows for employers to add a Roth provision to 401(k) or 403(b) plans.
2) Rollovers by Non-Spouse Beneficiaries. Up until now only spouses had the option of rolling over a qualified plan's assets, now any beneficiary can – child, grandchild, domestic partner etc.
3) Investment Advice. Beginning 12/31/06 employers will be allowed to sponsor investment advice to employees for their retirement plans.
4) Automatic Enrollment into Defined Contribution Plans. Beginning 12/31/07 employers may automatically enroll their employees into their company retirement plan. Employees will have to formally opt-out.
5) Increased Funding Requirements for Pension Plans. Employers have seven years (Airlines have ten years) to meet their pension obligations on a year to year basis. (Side note: accounting standards will require pension obligations to be carried as a liability beginning next year).
6) 529 Plans given Permanent Tax Free Distribution Status
7) Permanent Savers Credit. A 10% to 50% tax credit based on Adjustable Gross Income for contributing $2000 or less in a qualified retirement plan.
8) Direct deposit of tax refunds into IRA accounts. Beginning in 2007 you can have your tax refund sent directly to your IRA account.
9) Direct Rollovers to Roth IRA’s. Beginning after 12/31/07 you can directly roll your 401K account into a Roth IRA, before you had to go to an IRA then a Roth IRA.
10) Long Term Care/Annuity Products. Allows annuities to have a rider for long term care.
These changes can affect your current financial strategy, be prepared to make adjustments to optimize it’s use.
Comments