Military Officer - November 2006 - (Page 44)

financialforum New Pension Rules A new law could affect your retirement savings and charitable giving decisions. Phil Dyer, CFP, gives the highlights and explains the potential impact on your family’s ﬁnances. T But Wait, There’s More … ■ The Pension Protection Act of 2006 has many provisions, tax breaks, and adjustments not covered here. Check with your financial planner to see if you can benefit. he Pension Protection Act (PPA) of 2006, signed into law Aug. 17, contains many new provisions designed to shore up the nation’s sagging private-sector deﬁned beneﬁt pension plans, enhance some key IRA and 401(k) provisions, and open up new charitable giving opportunities. Some highlights: Defined benefit pensions. Most pension plans now are required to become “fully funded” within seven years starting in 2008. According to the Department of Labor, approximately 30,000 pension plans currently are underfunded with an estimated $450 billion in unfunded liabilities. Further, some “at risk” plans whose current funding is below a certain threshold will have additional restrictions placed upon them. The new law also encourages the use of so-called “hybrid” or cash-balance plans. Finally, rules for more robust plan participant education about various payout options and tax consequences are outlined. IRAs and 401(k)s. Key provisions of the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001 that were due to expire in 2010 now are permanent, including higher 401(k) and IRA contribution limits, which now are indexed to inﬂation. EGTRRA also makes it much easier for companies to automatically enroll employees at a base level in a 401(k) plan and provides expanded guidance on offering personalized investment advice to help employees make investment decisions. The new Roth 401(k) option — which was due to expire in 2010 — is now a per- manent option for companies to provide their employees (a 401(k)-type plan must be amended to offer this option). Employees also have more ﬂexibility to diversify money out of employer stock within their 401(k) plan, with the ability to move elective deferrals out of company stock immediately and move out of company matching contribution stock after three years in the plan. An important provision is the ability of non-spouse 401(k) beneﬁciaries to roll plan assets into an IRA. Finally, direct rollovers from 401(k)-type plans to Roth IRAs (subject to Roth IRA conversion rules) will be available starting in 2008. National Guard and Reserve servicemembers. Those called to active duty through Dec. 31, 2007, may take penaltyfree withdrawals from 401(k)-type plans and IRAs. Servicemembers have up to two years after coming off active duty to repay the withdrawn amount to avoid paying income taxes. Charitable donations. A major beneﬁt is the long-awaited ability to make direct tax-free contributions to qualiﬁed charities from a traditional or Roth IRA. This rule is in effect through the end of 2007 and imposes a $100,000 annual cap on such contributions. MO — Former Army Capt. Phil Dyer, CFP®, is deputy director for ﬁnancial education, Beneﬁts Information. To ﬁnd a ﬁnancial planner near you, contact Garrett Planning Network at (866) MOAA-GPN (662-2476) or www.moaa .org/garrett, or visit www.moaa.org/ﬁnancial center for other resources. PHOTO: GREG SCHALER 44 MILITARY OFFICER NOVEMBER 2006 http://www.moaa.org/garrett http://www.moaa.org/financialcenter http://www.moaa.org/garrett http://www.moaa.org/financialcenter

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From the Editor From the President Your Views MOAA Directory Rapid Fire Washington Scene Financial Forum Ask the Doctor Chapter Activities Cover Story: Financial Guidebook Got (the right) Insurance? A Penny Saved, a Degree Earned The “Y” MOAA Scholarship Recipients Pages of History Information Exchange Member Books MOAA Scholarship Donors MOAA Member Services Advertising Index MOAA Calendar Sounding Taps Encore

Military Officer - November 2006

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