The Pension Protection Act of 2006 (PPA) was signed into law by President Bush on August 17, 2006. While the Act made many changes to pension laws, it also included numerous provisions affecting retirement savings as well as charitable and estate planning. We believe several aspects of the Act to be of particular interest.

 Provisional Laws Made Permanent

One of the major benefits of the Act is that it has made permanent many savings provisions under the Economic Growth and Tax Relief Reconciliation Act of 2001 that were originally set to expire in 2011. The most relevant of these are:

• Inflation indexing of IRA contributions: $4,000 in 2006 and 2007, $5,000 in 2008 and continued inflation adjustments each year thereafter.
• Catch-up contributions to IRAs for individuals age 50 or older: $1,000 above the annual limit made permanent, but the Act does not index the $1,000 catch-up portion for inflation.
• 529 Plan withdrawals: PPA makes qualified tax-free withdrawals permanent.

Other Important Provisions

Effective for 2006 and 2007 only: Charitable donations paid from an IRA directly to a charitable organization are tax free distributions for individuals 701/2 or older. This means, since the donation is federal income tax free, one does not receive a charitable deduction on the income tax return. Donor advised funds and private foundations are specifically excluded from this provision.

Effective 2007: Non-spousal beneficiaries can roll over their interests in a qualified retirement plan, government plan, or tax sheltered annuity to an IRA. Previously, only spouses were allowed this option. The IRA will be maintained as an “inherited” IRA.

As always, we strongly recommend consulting with your tax or estate professional prior to making any decisions regarding your estate or planning goals.

—S. Benevento, CFP®