| 10 tax law changes in new pension law |
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In an effort to help employees determine which plan best suits their needs, the new law allows for workers to get investment advice regarding their various company-sponsored options.
However, any fees or commissions for the advice cannot
be based on the savings plan a worker chooses. This prohibition
was included in the new law to answer concerns that advisers would
guide workers toward plans that benefit the fund company more than
the employee. Expect companies, workers, consumer groups and Uncle
Sam to be closely monitoring how well this safeguard works.
3. Refunds
to retirement
If you have an IRA, in addition to your company retirement plan,
the pension law wants to help you add to that, too. When you get
your tax refund next year, you can tell the IRS to deposit it directly
into your IRA. The IRS has been sending refunds to filers' checking
and savings accounts for years. Now IRAs will be added, along with
new Form 8888 that will let you split and deposit a refund into
as many as three accounts.
Some tax-prep companies were already providing the
direct-to-IRA service, says Luscombe, but there was concern about
the associated fees. Now individuals can accomplish it themselves,
but Luscombe's "suspicion is that a lot of people won't take
advantage of this."
4. Easier
rolling into Roths
Since the Roth IRA appeared in 1998, thousands of retirement savers
have been drawn to its tax-free earnings and withdrawal potential.
But the plans pose a problem for workers who want to take their
company retirement accounts with them when they leave jobs.
Currently, you must put your former workplace's 401(k)
or similar-plan money into a traditional, individual retirement
account. The reason: Both the traditional IRA and company account
contain tax-deferred contributions and earnings, so they are treated
the same under the tax code; i.e., you'll pay taxes on the money
when it's withdrawn.
Once all the money is in a traditional IRA, then you can convert that account to a Roth. The new pension law cuts this two-step process in half.
Beginning in 2008, you can directly roll defined-contribution-plan
money into a Roth IRA. You'll have to meet the other Roth conversion
requirements, such as making less than $100,000. And taxes
on the converted amounts will still be assessed. But those tax
calculations will now be done as part of the simpler, one-step transfer.
5. Permanent
IRA contribution levels
Contributions to all IRAs got a boost in 2001 when major tax-law changes increased the amounts individuals are allowed to contribute to these accounts: $4,000 this year and next; $5,000 in 2008; adjusted for inflation after that.
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