New
Procedures Making It Easy For You To Save
While the act has
created lots of new rules and requirements for the emplyers,
for most taxpayers, who are often employees, it helps secures
their retirement savings.
401(k)
Automatic Enrollment — Compared to the predominant
“opt-in” 401(k) plan type, studies have shown dramatic increases
in plan participation by employees in “opt-out,” or “automatic
enrollment” plans. With this plan type, an employer is allowed
to automatically enroll eligible employees in its 401(k) plan
unless an employee affirmatively elects not to participate.
Why would an employer choose this option? The same reason
the employer decided to have a 401(k) plan in the first place.
Studies have shown that employees who participate in workplace
retirmement plans stay longer, therefore reducing costs related
to turnovers. For workers, this could mean an extra nudge
to save toward retirement.
Investment
Advice — Effective after December 31, 2006,
this provision creates an ERISA prohibited transaction exemption
that will enable investment advice to be provided by a “fiduciary
advisor,” who would otherwise be precluded from doing so as
a “party-in-interest” for a plan.
Direct
Rollovers to Roth IRAs — Effective for distributions
after December 31, 2007, direct rollovers of distributions
from qualified plans, 403(b) plans, and governmental 457(b)
plans to Roth IRAs will be allowed. Currently investors who
wish to do a Roth rollover need to follow a two-step process
a rollover to a traditional IRA and then a Roth conversion.
The Act allows assets to be rolled directly to a Roth IRA.
Non-spouse
Rollovers
— Effective for distributions after December 31, 2006, non-spouse
beneficiaries in a qualified plan, 403(b) or 457(b) plan are
eligible to roll over to a beneficial IRA. This is great news
for non-traditional families, as currently non-spouse significant
others (for example, domestic partners) typically are forced to withdraw the entire amount
as a lump sum and incur immediate taxes.
Direct
Deposit of Tax Returns — Effective for taxable
years beginning after December 31, 2006, the Act directs the
Department of the Treasury to allow individuals to direct
any portion of a refund to be paid directly to an IRA. In
fact, taxpayers can opt to split their 2006 Federal income
tax refunds with direct deposits into up to three different
accounts, for example, a portin to their checking account,
a portion to their IRA, and the rest to a Coverdell education
savings account that they own.
**
According to recent
economic reports from Washington, Americans' savings rate
fell to a record low. Hopefully the reforms brought by the
Pension Protection Act will encourage Americans to save more.
Otherwise worries may lie ahead for Americans.
Article Last Updated: 09/12/2006
This
material is provided for general and educational purposes
only, and is not intended to provide legal, tax or investment
advice. Individuals who wish to invest in retirement plans
should contact their tax and financial advisors regarding
their specific legal or tax situation.
