Pension Protection Act of 2006 v/s Economic Growth and Tax Relief Reconciliation Act of 2001
The Pension Protection Act of 2006 became law on August 17th, 2006 and is the biggest pension and retirement reform brought about since the Employee Retirement Income Security Act of 1974 (ERISA). Apart from affecting Pension Plans, the Pension Protection Act of 2006 has various effects on Individual Retirement Account (IRAs) as well as Defined Contribution Plans.
The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) allowed for various reforms such as increasing the annual IRA and pension plan contribution limits, making small business 401k and pension plans easy to setup and maintain as well as added tax benefits. However, these reforms were only temporary, to last till the year 2011. However, with the Pension Protection Act of 2006, these reforms are now permanent. Here are some of the reforms brought about by the Pension Protection Act of 2006:
Introduction of Saver's Credit: Tax Credit for Low Income & Middle Income Consumers
If you fall in the category of low income savers, you may be eligible for a tax credit of $1000 on contributions made to 401k retirement plans, 403b plans, 457 government plans, IRA (Individual Retirement Account) or Roth IRA. This new legislation called the "Saver's Credit" went into effect in 2002 (thanks to the Economic Growth and Tax Relief Reconciliation Act of 2001) and is a reduction to your Gross Income (so that you have a less taxable income). It cannot be used as a $1000 refund for extra cash flow... (Read Full Article)
Allowance of Direct Conversions from Qualified Plans to Roth IRAs
Before the introduction of the Pension Protection
Act of 2006, any assets from 457 or 403b plans must first be converted
to a Traditional IRA before being eligible to be moved into the
Roth IRA. Under the PPA of 2006, these assets can easily be converted
from 457 or 403b plans to Roth IRA assets starting from 2008.
Extra Contributions Applicable to Employees of Bankrupt Employers
Starting December 31, 2006, and before January 1, 2010, employees of bankrupt employers are allowed to make additional IRA contributions of upto $3000 per year from 2006 to 2009. In order to be eligible for this provision, the employee must meet the following requirements: