Tax Tip for
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 | permits qualified “fiduciary advisers” to offer investment advice to help employees manage their 401(k) and other retirement options; |
| puts in place fiduciary and disclosure safeguards to ensure that advice provided to employees is solely in their best interest; |
Liberalized plan payout and rollover rules
Provisions in the Act that liberalize plan payout and rollover rules include the following:
| after 2007, taxpayers will be permitted to make direct rollovers from qualified plans to Roth IRAs; |
| effective for post-2006 distributions, non-spouse designated beneficiaries are allowed to make rollovers of inherited amounts in qualified plans, governmental Section 457 plans, or tax-sheltered annuities to their own IRAs (treated as inherited IRAs); |
Retirement & college savings provisions made permanent
The Act makes permanent a number of retirement plan and IRA liberalizations that were added to the tax laws in 2001 but were set to sunset after 2010. By making the 2001 changes permanent, the new law preserves the advantages of higher employee contribution limits for employer plans, higher IRA contribution limits, more flexible plan rules, portability, a catch-up for those over 50, and an increase in employer contribution limits. In addition, the tax breaks for 529 College Savings Plans have been made permanent. The new law also makes permanent the saver's credit, which would not have been available after 2006 absent the extension.
Charitable reforms
The Act also contains a package of provisions to help prevent abuse in the charitable sector and provide additional tax incentives for Americans to give more resources to the charitable community.
| Tax-free distributions from IRAs for charitable purposes. Taxpayers can exclude from gross income certain distributions of up to $100,000 from a traditional or Roth IRA if made to a tax-exempt organization to which deductible contributions can be made. If the exclusion is chosen, the donated amount can’t be deducted as a charitable contribution. The provision is effective for two years through 2007. |
| Generally prohibit deductions for contributions of clothing and household items unless they are in “good used condition or better”. IRS may deny a deduction for any contribution of clothing or a household item with minimal monetary value, such as used socks or undergarments. A deduction may be approved for clothing or a household item not in good used condition or better that has a more than $500 claimed value and is backed up by a qualified appraisal. |
| Require that in the case of a charitable contribution of money, regardless of the amount, the donor must maintain a cancelled check, bank record or receipt from the donee organization showing the name of the donee organization, the date of the contribution, and the amount of the contribution. This is effective for contributions made in tax years beginning after August 17, 2006. |
| Recapture Provision. Under the new law, (a) if a charitable contribution of more than $5,000 (other than for publicly traded securities) is claimed for a contribution of tangible personal property after 9/1/06, and (b) the charity disposes of that property within 3 years of the contribution, generally, the excess of the contribution deduction claimed over the basis of the property is recaptured (included in income) in the year of the disposition. If the charity disposes of the property before the end of the year the property was contributed to the charity, the donor merely deducts the basis of the property rather than the property’s fair market value. Charities are required to file Form 8282 with the IRS to report such dispositions. The recapture may be avoided only if the charity files a qualified certification with the IRS which (1) certifies that the use of the property by the charity was related to the charity’s exempt purpose, or, (2) states that the intended qualifying use of the property at the time of the contribution became impossible or infeasible to implement. This certification must be signed under penalty of perjury by an officer of the charity. |
Please keep in mind that the above only highlights some of the changes in the new law. Please feel free to contact us if you need more details on how you may be affected by this important tax legislation.
