Gifts From Uncle Sam, Part II

Uncle Sam deserves another “thank you.”

Three additional changes will take place effective after December 31, 2006:

  • The new bill allows for workers to receive investment advice regarding their various company-sponsored options. However, the investment advisor(s) and investment manager(s) must meet certain exemption qualifications.
  • A major provision of the ACT is that it will permit non-spouse beneficiaries to do a direct Trustee to Trustee transfer of the inherited retirement plan into a properly titled beneficial IRA. In the past, the non-spouse beneficiary had to withdraw the monies within a maximum period of 5 years and pay the taxes on the entire amount. Now, non-spouse beneficiaries can spread the distributions over their life expectancy and spread the tax liability over many years.
    This new rule creates many estate and tax planning benefits. Same sex partners, children, grandchildren, and other non-spouse beneficiaries can now enjoy the same planning benefits that only spouses were able to. This single provision is by far the biggest, best part of the new law.
  • Another provision is that individuals will now be able to direct the Department of Treasury to directly deposit any portion of their tax refund into an IRA making IRA contributions easier.
  • Beginning in 2008, individuals will be able to directly roll their qualified plans, 403(b) or Governmental 457 Plan into a ROTH IRA to avoid having to first place the assets in a conduit IRA.
  • Another big “thank-you” is owed to Congress for a provision signed into law by President Bush on May 17, 2006. This provision eliminates the eligibility rules for ROTH IRA’s. But, this provision is not effective until 2010.

Under the current rule, taxpayers with Modified Adjusted Gross Income (MAGI) over $100,000 or who had a tax filing status of married filling separate were not eligible to convert to a ROTH IRA. In addition, if converted, the conversion income would be taxed in the year of the conversion. That will also change for 2010.
For conversions done in 2010, the taxes can be spread evenly over 2 years and included in income for 2011 and 2012!! This is like getting an interest free loan to build a tax-free savings account.
Uncle Sam is making it quite evident that a secure financial retirement is the responsibility of each and everyone of us. We now have higher contribution limits, more flexibility and it is easier then ever to save for retirement.
The information presented is general in nature and should not be considered legal or tax advice. You should consult your legal or tax advisor for information concerning your own specific tax situation.

Pat Grenier is a General Partner with BRP/Grenier Financial Services in Springfield, MA. Securities offered through Cadaret, Grant and Co., Inc., Member FINRA/SIPC. BRP/Grenier and Cadaret, Grant and Co., Inc. are separate entities. Pat can be contacted by phone at (413) 736-6712, or email her at pat@brpgrenier.com