by Sidney J. Ruth, CPA/Financial Advisor
The Pension Protection Act of 2006, signed into law by President Bush on August 17, covered more than what the name implies. While the bulk of this act is designed to force employers to solidify their pension plans, many provisions are relevant to employers who offer retirement plans, as well as employees and individuals who are building a retirement nest egg.
Selected Provisions of the Act
Some of the provisions in the Pension Protection Act may have a noticeable effect on FIFS clients. Although not a comprehensive list, these provisions include:
- Prohibiting companies from forcing employees to invest their own retirement savings contributions in the stock of the employer.
- Allowing employers to enroll their employees into a qualified retirement plan automatically, with default contribution levels. Employees will need to “opt-out” if they don’t want to participate in the plan.
- Allowing non-spouse beneficiaries to roll over assets inherited from a qualified retirement plan into an IRA. This benefit previously was available only for spousal beneficiaries.
- Allowing for a direct rollover from a 401(k) account to a Roth IRA, with the rollover treated as a Roth conversion.
- Permanently allowing for Roth 401(k) and Roth 403(b) plans.
- Giving taxpayers the option of “split tax refunds”, in which they may choose to deposit a portion of their federal tax refund directly into an IRA.
- Making permanent the IRA provisions enacted under the 2001 tax cut legislation. The 2001 law increased contribution limits for IRA’s and qualified pension plans, as well as creating “catch-up” contributions for individuals age 50 and older. These reforms were scheduled to expire in 2010.
If you have questions about how the Pension Protection Act of 2006 will affect your financial planning, please call us at 1-800-332-4141 or 267-384-5300.
FIFS Connection, Fall 2006, Vol.3, No. 4
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