Posted by Steve Boots, Financial Advisor
on April 10, 2007

Fortunately for individuals saving for retirement, the Pension Protection Act of 2006 moves well beyond pension plans to enhance individual retirement account options. Temporary contribution increases are now permanent; a new option for IRA Required Minimum Distributions and certain restrictions on Roth IRAs will be lifted. Here is a summary of some of the enhancements that may affect you.

Contribution Limit Increases Made Permanent
Increased retirement plan contribution and benefit limits due to expire in 2010 have been made permanent, and the limits will increase over time with cost-of-living adjustments. This affects IRAs, 401(k)s and other retirement plans. In addition, distributions from 529 plans used for qualified higher education expenses will remain excluded from gross income.

Suggestion:
• Consider the benefits of contributing the maximum to tax-advantaged IRAs, retirement plans and 529 plans.

Rollovers by Non-Spouse Beneficiaries
Beginning in 2007, non-spouse beneficiaries of employer-sponsored retirement plans can roll distributions directly into a beneficiary or inherited IRA, which enables them to keep the assets tax-deferred for longer periods than previously allowed. Both spouse and non-spouse beneficiaries will be able to “stretch” distributions—and taxes—over their lifetimes.

Suggestions:
• Review your beneficiaries periodically
• If you’re a non-spouse beneficiary, consider delaying distribution of inherited employer-sponsored retirement plans until 2007, and then roll the assets directly into a beneficiary or inherited IRA.

Charitable IRA Distributions
In 2006 and 2007, individuals over age 70½ can make annual, tax-free distributions of up to $100,000 from their IRAs directly to a qualified public charity and count the contribution toward that year’s IRA required minimum distribution (RMD).

Note: This provision does not apply to distributions from employer-sponsored retirement plans, including SEP IRAs and SIMPLE IRAs.

Suggestion:
• Consider whether you would benefit from taking advantage of this opportunity—it’s a triple play. The charitable distribution from your IRA is not taxed, it satisfies your RMD and helps your chosen charity.

Direct Roth IRA Conversions
Beginning in 2008, individuals whose adjusted gross income (AGI) doesn’t exceed $100,000 and who are eligible to make a rollover can roll distributions from an employer-sponsored retirement plan directly into a Roth IRA. Currently, the employee must roll the distribution into a traditional IRA, and then convert the traditional IRA to a Roth IRA.
In addition, legislation passed this May, eliminates the $100,000 AGI limit for Roth conversions starting in 2010, which means everyone will be able to take advantage of the tax-deferred growth and tax-free distributions Roth IRAs offer.

Suggestion:
• Whether or not it’s deductible, consider contributing to a traditional IRA every year from now until 2010, when the AGI limit is eliminated, and then convert the traditional IRA to a Roth IRA. Certain tax reporting options are available for individuals who convert in 2010. You should consult with your tax advisor for more detail.

Direct Deposit of Tax Refunds to IRAs
Taxpayers can direct the IRS to deposit all or part of their tax refund directly into an IRA beginning in 2007.

Suggestion:
• If you expect a refund, ask your tax advisor to set up a direct IRA deposit with the IRS.





Contact your Financial Advisor or tax advisor to find out how this legislation affects your individual situation, and how you can best take advantage of these new enhancements to retirement savings vehicles.

Steve Boots is a Financial Advisor with UBS Financial Services located at 115 North Washington Avenue in Cookeville, TN 38506. He may be reached by email at steve.boots@ubs.com or by phone at (931) 528-5426 or toll free at (800) 359-2723. His website address is www.ubs.com/fa/steveboots.

Neither UBS Financial Services Inc. nor any of its employees provide legal or tax advice. You should seek the services of your legal and/or tax advisors when making decisions about a retirement plan or retirement plan distributions.

As a firm providing wealth management services to clients in the U.S., we offer both investment advisory programs and brokerage accounts. Advisory services and brokerage services are separate and distinct, differ in material ways and are governed by different laws and separate contracts. For more information, please visit our website at www.ubs.com/workingwithus