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Newsletters
The Monthly Blend
September 2006
The Pension Protection Act of 2006 
Impact on personal taxation
Submitted by: Matthew McCauley
It seems like every piece of tax legislation passed in recent history affects more provisions than the title would imply. This generalization is certainly true of the Pension Protection Act of 2006 (PPA). In addition to those direct changes to the law governing pension plans, this legislation includes changes for individual taxation. Some of these changes are coordinated with retirement plans, but some are not.
Changes linked to retirement plans
Tax law is always improved when it becomes more predictable. The PPA made this improvement by making permanent many of the tax incentives added by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). This change enhances personal retirement planning opportunities by making permanent the increase in the personal savings limit for defined contribution plans, the Roth 401(k) privilege, the expanded IRA limits and the age 50+ catch-up provisions.
Tougher rules on charitable contributions
Under the new rules, taxpayers must keep records of all cash donations. By records, this means a receipt, cancelled check or credit card statement. The old flexibility allowing for a contemporaneous record of cash contributions will no longer apply. No documentation means no deduction. This documentation does not have to be submitted with the return, simply maintained with the taxpayer's other tax records.
The new law presents a new restriction on non-cash donations. Donated items such as cars, clothing and household goods must be in "good used condition or better." Neither the law, nor the legislative history gives much indication as to what that means. Will something that can be repaired at a reasonable price be deductible?
These changes will be effective for contributions made after the effective date of the PPA or August 17, 2006.
Contribution of IRA to charity
Combining the pension changes with the charity changes, the law permits a direct transfer of an Individual Retirement Account (IRA) from the taxpayer to the charity, if the taxpayer was at least age 70 ½ on the date of transfer. In the past such action was treated as a distribution of the IRA benefits to the taxpayer and a subsequent contribution of the cash value to the charity. Such treatment was not always tax neutral due to limits on the deduction for charitable contributions.
Under the PPA, a taxpayer who is age 70 ½ or older may make a direct transfer from his or her IRA to a charitable organization without such amount being included in taxable income and with the charitable contribution impacting the limits that otherwise apply to charitable contributions. The amount of such transfer may not exceed $100,000 per taxpayer, per year. Though not included in taxable income, such distributions will satisfy the minimum required distribution for such persons.
Timing alert:
This provision is first effective August 17, 2006 - when the President signed the bill, but it is scheduled to sunset December 31, 2007. So, absent other action by Congress, there are only two tax years in which this privilege will apply - calendar years 2006 and 2007.
Non-spousal beneficiaries
For years it has been annoying that only spousal beneficiaries had the privilege of rolling over an inherited IRA. Non-spousal beneficiaries were required to take distributions from the benefit plan or IRA of the decedent over the period elected by the decedent, or five years if no such period was elected.
The new legislation provides a rollover right to a nonspouse beneficiary. That individual gets control over the investment direction of the funds, but must take minimum required distributions as a beneficiary. This provision is effective for employer plan distributions after December 31, 2006. The plan participant's date of death does not affect this rollover availability.
Other changes
This overview merely highlights those changes in the PPA which relate directly to personal tax matters. There are many changes in the operation of retirement plans, the operation of charitable organizations, tariff rules and other provisions that may have an indirect impact on your personal tax situation through their impact on your business returns. Do not hesitate to call your personal RSM McGladrey tax representative to obtain a better understanding of how this law might impact you.
For more information, contact
Matthew McCauley, mmccauley@beasonnalley.com
256.533.1720 or 800.416.1946
Provided by RSM
Coffee Talk
Darryl Walker is scheduled to present FAR PART 31 Cost Principles to our clients on September 26, 2006 at Beason & Nalley.
Don Nalley presented Buying and Selling Your Business at the Business Expo 2006 held at the VBC.
Beason & Nalley participated in the SMDC (Space Missile & Defense Conference) exhibition held at the VBC in Huntsville on August 15, 16 and 17.
Beason & Nalley will host the Deltek GCS Premier™ Time Collection class on September 6 and 7. Payroll and HR Processing classes will be held in October.
Gail Wall and Stephanie Kingsford attended the 2006 Unending Changes, Some Good, Some Bad, Seminar presented in Birmingham by AmSouth Bank.
Don Nalley, Cindy Hill, Matthew Capone and Stephanie Kingsford attended the Barebones Tax Update sponsored by The Alabama Society of CPAs at the Huntsville Marriott.
Thanks to Denise Miles and Matt Capone for participating in the MDA fundraiser, they were both “arrested” for the cause, and together raised nearly $2000 in “bail money”.
Welcome to Casi Edwards who is joining the Audit Department as a Consultant.
Sympathies are extended to Mike Woeber and his family in the loss of his Mother, Claudia Woeber. Related Information:
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