Protecting Your Future

The Pension Protection Act, which Congress passed this past August, is a 900-plus-page whopper of a law, attempting to deal with everything from Enron-style shenanigans to 529 tuition plans. Several of the useful provisions of this act have gotten very little notice in the press.

Many of the provisions involve making what had once been temporary changes permanent, such as raising the contribution limits for both Roth and regular IRAs. Others are completely new ideas. It’s worthwhile to take a closer look at some of these latter changes, a few of which might be helpful to your financial plans.

Changes in the Law

IRA Transfers to Charity  The new law permits a donation of up to $100,000 directly from your IRA to a qualifying charity for anyone who has reached the age of 70½. This could be helpful for anyone who has a sizable amount of money built up in an IRA, does not want to increase his or her adjusted gross income and wants to judiciously remove assets from his or her estate. For the moment, this provision expires at the end of 2007, so it’s something to start thinking about right now.

Employers’ Stock in 401(k)s  Employer-provided 401(k) plans must allow plan participants and beneficiaries to move their money from their employers’ stock to other investments. Employers must provide at least three other plan choices aside from the company’s own stock that are diversified and possess materially different risk and return characteristics.

Direct Deposit to IRAs  When you get your tax refund circa April 15, you will be able to have it directly deposited into your IRA. But if you do, you need to be careful: You must tell your IRA custodian which year you want to have credited with the contribution, since you can make contributions to an IRA up through April 15.

Permanent Changes  Many earlier changes to laws affecting retirement savings were made permanent by the act. For instance, contribution limits to IRAs had been scheduled to return to the 2001-era levels of $2,000 a year, but they will now remain twice that high and increase to $5,000 in 2008. The provision allowing people over 50 to make catch-up contributions to their IRAs has also been made permanent. And the law allowing employers to add a Roth IRA component to their 401(k) or 403(b) plans will continue as well, giving many people much greater flexibility in their retirement plans.

Professional Advice

Finally, there’s a provision that says that any advisor with a fiduciary relationship must provide investors with full information on fees, potential conflicts, available services, etc. Of course, we’ve always been willing to provide our clients with as much information as they want, but it is nice to see the rest of the financial world catching up with us.

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