Taxes, All that you need to know

View our complimentary Federal Tax Guides for 2007 (PDF 81 KB) and 2008 (PDF 85 KB) .

Tax relief: HEART Act of 2008
On June 18, 2008, President Bush signed into law the "Heroes Earnings Assistance and Relief Tax (HEART) Act of 2008." This legislation contains many types of tax relief for military personnel, and specifically offers tax-related benefits associated with employer-sponsored retirement plans, IRAs and Coverdell Education Savings Accounts (ESAs). Read a general overview for selected tax provisions of this legislation.

Pension Protection Act of 2006
On August 17, 2006, President Bush signed into law the Pension Protection Act of 2006 (PPA). This legislation includes a variety of provisions that protect savers and encourage retirement savings in IRAs and defined contribution plans. It also made permanent many retirement savings provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). The information presented here is intended to provide a general overview of selected tax provisions of this legislation. For assistance in determining how these provisions apply to your personal financial situation, please consult a tax advisor.

Defined Contribution Plans and IRAs
Qualified Reservist Distributions – Qualifying military reservists called to active duty (after 9/11/2001 and before 12/31/2007) can take distributions from an IRA or certain other retirement plans free from the 10% tax penalty and re-contribute those amounts to an IRA during the two years after active duty ends.

Saver’s Credit Permanence – The Saver’s Credit provides a credit (up to $1,000) to eligible taxpayers for contributions to IRAs and certain qualified retirement plans (QRPs). Established by EGTRRA, the credit was scheduled to expire after the 2006 tax year. The PPA makes the Saver’s credit permanent and indexes for inflation the income limits applicable to the credit.

IRAs
EGTRRA Permanence – EGTRRA increased IRA contribution limits, allowed individuals 50 and older to make catch-up contributions and expanded rollover opportunities. These provisions were scheduled to expire on December 31, 2010 but are made permanent by the PPA.

Indexed Income Limits – Modified adjusted gross income (MAGI) limits relating to Traditional IRA contribution deductibility and to Roth IRA contribution eligibility will be adjusted for cost of living in $1,000 increments.

Charitable Distributions – During 2006 and 2007, Traditional and Roth IRA participants age 70½ and older may have IRA distributions paid directly to qualified charities and exclude those distributions (up to $100,000 per year) from their income.

Defined Contribution Plans
EGTRRA Permanence – The PPA makes permanent the EGTRRA contribution and catch-up limits and portability provisions. The Roth contribution option for 401(k) and 403(b) plans was also made permanent.

Beneficiary Hardship Distributions – Participants may take hardship distributions (if allowed by their plans) for specific unforeseeable emergencies of their beneficiaries, even if the beneficiary is not a spouse or dependent.

Rollovers to IRAs – Beginning in 2007, non-spouse beneficiaries of QRPs, governmental 457(b) plans, and tax-sheltered annuity plans may directly transfer death benefits to an inherited IRA. Also, beginning in 2008, direct rollovers may be made to Roth IRAs from QRPs, governmental 457(b) plans, and tax-sheltered annuity plans. Roth IRA conversion eligibility rules will apply to these rollovers.

Periodic Benefit Statements – Plans are required to provide quarterly benefit statements to participants in plans that allow participant-directed investments and annually to participants in plans that do not allow participant-directed investments.

Simplified Form 5500 Filing – The threshold for filing Form 5500-EZ has been raised to $250,000. Simplified Form 5500 reporting will be available for plans with fewer than 25 participants. Both provisions are effective for plan years beginning 1/1/2007 or after.

Automatic Enrollment – Various incentives are provided for employers sponsoring 401(k), 403(b) and governmental 457(b) plans to include automatic enrollment features in their plans. The PPA preempts state laws prohibiting automatic enrollment. It also creates a new safe harbor 401(k) plan with automatic enrollment features beginning in 2008.

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