WASHINGTON — Advocates say the recent signing of the Pension Protection Act will allow Americans to contribute more to their individual retirement accounts and have other incentives to save.
On Aug. 17, President Bush signed the legislation, which includes a permanent extension of the Retirement Savings Tax Credit or Saver's Credit and higher contribution limits for individual retirement accounts. The credit can be used by low- and moderate-income savers to offset up to $1,000 contributions made to traditional and Roth individual retirement accounts or to other qualified employer-sponsored retirement plans such as 401(k)s, 403(b)s, annuities, SIMPLEs and SEPs.
The pension bill also increased to $5,000 the ceiling for annual contributions to traditional, Roth, and spousal IRAs, and included catch up provisions that give savers over the age of 50 higher limits for retirement saving.
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CUNA has been a long-time supporter of making the Saver's Credit permanent. The credit was set to expire at the end of the year.
The new law will also index for inflation the income limits for traditional and Roth IRAs; permit penalty-free withdrawals for members of the National Guard and Reserves called to active duty for a period in excess of 179 days and those called to active duty, who make qualified withdrawals from their IRAs or pension plans, to roll over the funds tax-free to an IRA or pension plan, within two years of the distribution.
The IRS will also be required to establish procedures for depositing tax refunds directly into IRAs. Tax-free distributions from IRAs for charitable purposes, if paid directly to a charity by an IRA owner over age 70 1/2, are now allowed although this provision is effective through 2007.
The new law also allows any death beneficiary under a qualified retirement plan to roll money directly into an IRA in a decedent's name; allow direct rollovers from qualified retirement plans to Roth IRAs; and permit additional IRA catch-up contributions for employees of companies in certain bankruptcy cases.
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