With tax time for 2006 right around the corner, I thought it might be a good time to revisit an article over at Smart Money that I read in August about all the new tax law changes that go into effect in 2007 and 2008 with Bush’s signing the “Pension Protection Act of 2006”. Since these changes will be affecting a lot of people, I thought I would highlight a few of the changes here and you can check out the rest at the original article.
—Beginning in 2007: More Beneficiaries Can Roll Over Money from Deceased Person’s Retirement Plan
Under the current rules, only an individual who is a deceased person’s surviving spouse can roll over, into his or her own IRA, distributions received as a beneficiary of the deceased person’s qualified retirement plan. Other beneficiaries (such as children and other relatives) can’t take advantage of the tax-smart rollover strategy. But things change. Beginning next year, a nonspousal beneficiary’s IRA will be allowed to receive a tax-free rollover of a qualified distribution from a deceased person’s plan. (cont.)
*I like this one, as sometimes there is not a spouse to be had and it frees up more options for families to keep the money that another family member has worked so hard to save up.
—Beginning in 2007: Directly Deposit Your Tax Refund Into IRA
Starting with your 2007 Form 1040, you’ll be allowed to directly deposit all or part of your federal income tax refund into your IRA or your spouse’s IRA if you file jointly.
*Brilliant…if you are already using your witholdings as a savings account, now you can put it right into your retirement account come tax refund time.
—Employers Can Automatically Enroll Workers for 401(k) Contributions
The PPA immediately removes perceived state-law obstacles that discouraged many employers from automatically enrolling their workers for 401(k) salary reduction contributions. Effective for plan years beginning in 2008, the new law also installs auto-enrollment rules that will make it easier for 401(k) plans to pass nondiscrimination tests (intended to prevent contributions from being too heavily skewed in favor of higher-paid employees). (cont.)
*No more exempting people from enrolling just because they didnt ask or they were lower on the totem pole. Great.
Bigger maximum salary reduction pay-ins for SIMPLE plans. Participants age 50 and older can contribute more.
*Allows people more time to pay catch up towards retirement day!
—Saver’s tax credit of up to $1,000 for those with modest incomes who contribute to 401(k) plans and IRAs (subject to income-based phaseout ranges that depend on filing status).
*Maybe this could encourage more people to actually contribute to retirement plans, knowing they might get a tax credit of up to $1,000 if they do so? Let’s hope so.
There is so much more in this article, including some of the downsides to the new tax laws that will be in place in 2007 and 2008. Be sure to check out the rest of the article at Smart Money!