Things Every Taxpayer Must Know About the Pension Law

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The Pension Protection Act, which was passed into law on August 17, 2006 is intended to address the nationwide problem of inadequately-funded pension plans. The law punishes companies that are not compliant and encourages employees to contribute. But many of these changes directly impact taxpayers at all ages, regardless their retirement status. “Taxpayers can benefit from many of its provisions, some of them in the form of tax cuts, but individuals cannot fully take advantage of the tax exemptions until the new laws have been fully understood,” said Michael Smith (Managing Authorized Taxpayer Representative, tax services firm FSI Tax Corp., www.fsitax.com). 2021 pension limit

Taxpayers now have the option to have their tax returns deposited directly into IRA accounts. The IRS already allows taxpayers to have their tax returns automatically deposited into saving and checking accounts. Legislators hope that taxpayers will contribute more to their retirement accounts by creating IRA accounts.

The Pension Protection Act made some temporary tax laws, enacted as a result of the 2001 tax cuts, permanent. This includes the ability of withdrawing from 529 college savings plans, without being subject to tax penalties. Smith said that although it might seem odd to include college savings withdrawals in a pension statute, parents who otherwise would have to tap into their IRAs to pay for their children’s education are happy to accept this provision. 2021 IRS pension limit

2001 saw the IRS temporarily increase employee-sponsored retirement plans contribution levels from $2,000 a $4,000 this year to $5,000 in 2008, and then adjust by inflation. These higher limits were due to expire in 2010 but they were made permanent by the act. This change is also meant to encourage greater contribution amounts. It applies to 401ks, IRAs. 403bs, 457s. Catch-up contributions are for workers over 50.