The Pension Protection Act of 2006

The positive effects of the Pension Protection Act of 2006 have been well announced. However, in the many pages of the document many additional benefits can be found, which have not been given voice to the public. Such changes affect college saving or IRA assets donation for charity.

Some of the less known opportunities you can take advantage of include:

• The deposing of federal tax refunds into an IRA account.

  Under the new legislation you are given the opportunity to directly transfer your federal tax refund into your IRA account. The amount of the tax refund you can transfer is restricted to the same limits that are imposed to the IRA contributions. As a result if your tax refund exceeds these limits, the amount that is left can be transferred to another account that is not used for retirement purposes.

• Non-spouse beneficiaries tax relief.

  If you have inherited a qualified retirement plan, under the previous regulations you were obliged to withdraw the money in one time lump sum and thus incur taxation. However, under the new regulations, non-spouse beneficiaries are allowed to complete a direct trustee-to-trustee transfer, which allows them to stretch the minimum required distributions over a longer time period. In this way the tax burden on beneficiaries is significantly alleviated.

• 401 (k) plan savers enjoy more diversification.

  Under the new regulations of the Act, you are given the opportunity to sell the stocks of a publicly traded company that your employer has matched through your contributions. This can be done after you have been in service for three years. Additionally, you are allowed to enjoy the proceeds from the sold shares you have purchased by contributions you have made.

  Under the new Act rules, employers are forbidden to oblige their employees to invest contributions in the company's stocks. In addition to the company stock at least other investment options of different risk and return structure should be provided for the employees to include in their company-sponsored retirement plan.

• 529 College Plans have been freed from federal income taxation.

  The new Act made the tax benefits of investing in a 529 College Saving Plan permanent. This means that you can distributions for the purposes of financing qualified higher education are exempt from federal taxes.

• The possibility to make donations out of your IRA account.

  If you decide to make donation from your IRA savings, the distributions will not be subject to taxation. All you need to do is to send the minimum amount needed to a qualified charity organization. No matter the amount you are willing and able to donate, it is better to do it, because you don't have to report the income or pay any taxes on the distributions made.

  Exception is made for SEP IRAs and SIMPLE IRAs. Additionally, charities such as donor-advised funds, supporting organizations and private foundations are not considered to be qualified.

• Tighter regulations on cash and goods donations.

  Under the new regulations donations of cash and goods will be given a closer scrutiny. You can still donate such items, but they should be in good condition. However, if you donate an item that has a value of over $500 its condition is not taken under consideration and can be deducted for the purpose of tax alleviation. You should keep in mind that if you overstate the value of a donated item you may be subject to penalties by the IRS.

• Military reservists' benefits.

  Under the new regulation, military reservists have the right to make early withdrawals without incurring any penalties. In order to benefit from, they have to meet the following requirements:

  • Be qualified reservists
  • Be members of the National Guard
  • Have served more than 179 days of active duty between September 11, 2001 and December 31, 2007.

  The withdrawals that have been made before the specified time should be repaid in two-year time period.

• Low-income savers benefits.

  Under the Pension Protection Act of 2006 low-income savers are given the opportunity to receive a tax credit of no more than $2,000. They should contribute to a company-sponsored retirement plan or an IRA to be eligible. There are many other groups of people that can benefit from this credit, but strict eligibility rules are imposed. Every year the limits of the income that determine eligible candidates will be adjusted to inflation.

Under the new implementations of the Pension Protection Act of 2006 companies are obliged to complete their pension plan obligations within seven years. An automatic increase in the percentage of employee's annual salary deferral is allowed as well as the automatic inclusion of an employee in a 401k plan.

The Pension Protection Act of 2006 has managed to encourage US citizens' retirement willingness to make the necessary steps toward ensuring their retirement years.

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