Use tax law changes for a better retirement

Learn more about:

Can you feel the impact? It’s been about a year since President George W. Bush signed into law the Tax Increase Prevention and Reconciliation Act and about nine months since he signed the Pension Protection Act of 2006 into law. So has it affected you? Can you feel the difference?

Well, you just finished filing your income tax return (hopefully). Did you do a direct deposit of your refund into an IRA or Roth IRA? That was one of the provisions of the Pension Protection Act.

If you’re over age 70.5 and charitably inclined, for last year and this year only, you can make a contribution directly from your IRA to a qualified charity, up to $100,000. That donation also qualifies as part of your required minimum distribution for the year. That’s a big deal!
For many qualified plan (such as the 401(k)) participants, it’s important to be able to stretch out distributions from the plans as long as possible, maybe for generations. Thus, surviving spouses could roll over their deceased spouse’s qualified plan into an “inherited IRA.”  Then the survivor could take out distributions based on life expectancy, not all at once, thereby spreading out the tax. This benefit has now been extended to non-spouse beneficiaries as well (such as one’s kids). Stretching an IRA is only appropriate for investors who will not need the money to fund their retirement.

- Advertisement -

Do you like Roth IRAs with their tax-free growth? I really do. Now you can do a direct rollover from your company plan to a Roth IRA. How does that work?  Say you have $750,000 in your company’s plan, you retire, and then want to put $50,000 of it into a Roth IRA. You can now do that, pay the tax on that amount only, and have it grow tax-free. You can then roll over the balance, if you choose, to a traditional

IRA. It used to be a two-step process.

Those are some of the provisions.
Other benefits that you’re enjoying from the “act” include that parts of the 2001 tax act regarding retirement have now been made permanent. Catch-up provisions for those over age 50, higher IRA and Roth IRA contribution limits. The Roth 401(k) and Roth 403(b), among other provisions, have all been made permanent now.  

- Advertisement -

There’s more to come! From the Tax Increase Prevention and Reconciliation Act, there is going to be a big incentive to IRA holders to convert traditional IRAs to Roth IRAs in 2010. Start planning now! Why? This act eliminates the income restrictions for Roth IRAs and will allow anyone to convert and take advantage of the tax-free growth of Roth IRAs.
Not only that, there’ll be an incentive to do the conversion (and, coincidentally, create a lot of tax revenue for the government to spend). The tax will be deferred for a year, while you will get tax-free growth. Then the tax due will be spread out over the next two tax years, 2011 and 2012. A terrific deal!  

So you may not have known it, but many provisions of the tax acts signed by President Bush last year already have affected you or could affect you in the future.


Sign up for the BizTimes email newsletter

Stay up-to-date on the people, companies and issues that impact business in Milwaukee and Southeast Wisconsin

What's New


Sponsored Content


Stay up-to-date with our free email newsletter

Keep up with the issues, companies and people that matter most to business in the Milwaukee metro area.

By subscribing you agree to our privacy policy.

No, thank you.
BizTimes Milwaukee