The Pension Protection Act of 2006, signed into law by President Bush on August 17, 2006, is the most comprehensive pension reform legislation in over 30 years. It also contains provisions relating to charitable giving and tax-exempt organizations and extends some tax benefits under prior law that were due to expire. This Notice highlights just some of the changes in the law that might be of interest to you.
- The Act makes permanent the increased contribution limits and "catch-up" amounts allowed for persons age 50 and over under prior law, which will be indexed for inflation beginning in 2007.
- A long awaited provision permits direct rollovers from IRAs to charity, under certain, limited circumstances (see "qualified charitable distributions" below).
- For tax years beginning in 2008, direct rollovers from qualified retirement plans will be permitted to Roth IRAs, subject to the adjusted gross income limit of $100,000 for years prior to 2010. (Rollovers to Roth IRAs were previously allowed only from IRA accounts.)
- For tax years beginning in 2010, the $100,000 income limitation for rollover conversion to a Roth IRA no longer applies. The amount rolled over will be recognized as income in the year converted. However, special tax treatment applies to conversions in 2010: the amount rolled over is recognized in income ratably in 2011 and 2012.
- Distributions from a deceased person's retirement plan after December 31, 2006 may be rolled over by a non-spouse beneficiary. The rollover IRA will be treated as an inherited IRA and minimum distribution rules will still apply. This may be especially helpful where retirement plans require beneficiaries to take distributions over a short period.
- Up to $100,000 per year in "qualified charitable distributions" may be made from a traditional or a Roth IRA (not any other type of retirement plan) directly to public charities (not to private foundations, and not to donor advised funds or supporting organizations) in 2006 and 2007 by persons who are age 70 ½ at the time of the distribution. The charitable distribution will not have to be reported in income and will satisfy the annual minimum distribution requirements. But beware: If any portion of a contribution is disqualified (for example, season's tickets are received in exchange for the contribution), the entire contribution is disqualified for this special tax treatment. Gifts to charitable reminder trusts or charitable gift annuities do not qualify. This is a great (and limited) opportunity to make gifts to charity from your IRA if all the conditions are met. Please contact your tax advisor prior to making a gift to be sure it is a "qualified charitable distribution."
- Gifts of "qualified conservation easements" to a "qualified conservation organization" may be deducted up to 50% of the donor's "contribution base," increased from 30% under prior law, for gifts of conservation easements made in 2006 and 2007. Any excess deduction may be carried forward for up to 15 years (the carry forward is normally limited to 5 years). A "qualified farmer or rancher" (a person whose gross income from ranching or farming constitutes over 50% of his total income) may deduct gifts of qualified conservation easements up to 100% of his contribution base, so long as the property remains available for agriculture or livestock production. If you are planning to donate a conservation easement on your real property, now may be a good time to do so.
- New rules pertaining to donor advised funds are intended to curb perceived abuses. New excise taxes and penalties are imposed on sponsoring organizations and on their managers for making taxable distributions from donor advised funds. Excise taxes may also be imposed on donors, donor advisors, and related persons who receive a benefit from a distribution from a donor advised fund. Contributions to a donor advised fund will only be deductible if the donor obtains a contemporaneous written statement acknowledging that the sponsoring organization maintains control over the assets contributed.
- Cash donations will no longer be deductible, in any amount, unless substantiated with a bank record or a writing from the charitable organization.
- Increased penalties apply for failure to comply with reporting requirements for split-interest trusts (such as charitable remainder trusts).
- Tax-preferred treatment of Code Section 529 (qualified tuition program) plans has been made permanent.
- Penalties for underpayment of income, estate, and gift taxes due to "substantial and gross valuation misstatements" will be imposed in more instances. Appraisers beware: Penalties are also imposed on any person who prepares an appraisal that results in a substantial or gross valuation misstatement.
If you have any questions about these or any other provision of the law, please feel
free to contact Attorney Vincenti at (860) 435-2077 or
This is not intended as tax advice.
For applicability to your specific situation, please contact your tax advisor.