Since august 2006, the Pension Protection law has become a law. The law will scrutinize those companies that are not complying with the newly introduced rules. It also provides encouragement to contributions by employees. There have been several changes in the law that would impact the taxpayers in all age groups. With the law you would come across important changes in tax code which could affect tax relief options as well.
You will also find changes in contribution levels. The contribution to retirement plans under employee sponsored programs would be pegged at $5000. Since the amount has been increased, it will encourage people to contribute more. Moreover, your contributions will be applicable to IRAs 403 (b), 457 and 401 (k). As an employee, if you are moving from one workplace to another, you could only shift your 401 (K) to traditional IRAs. In case, you wanted to withdraw your funds you need to pay taxes then you were allowed to transfer 401 (k) to Roth IRA. However, now with he help of new pension law, you can directly transfer 401 (k) to Roth IRA.
There have been several changes in tax deductions for charitable donations. If you are planning more money by donating more money in charity, the changes might make you change your decision. Before the pension act became law, if you take money out from your savings you would need to pay tax penalties but now the tax laws have been changed and you can withdraw money for 529 College saving plans and you would not need to pay any penalty. Now you need to document your all the items that you are donating in charity. It would prevent the taxpayers from increasing their tax deduction disproportionately.
You would also need to document monetary gifts in your next tax filing. As a taxpayer, you should keep all the bills and invoices of your donations. These proofs have nothing to do with the money. You can show your contribution to any charity with the help of credit cad statement, bank statement or receipt from charity. The new pension law allows you to deposit your tax returns directly in your IRA accounts. With this government thinks that contributions towards the retirement account would increase.
Most of the employees generally opt for safe investments for 402 (k). It allows them to get low or modest returns. But with the introduction of new pension law, you can get advice on investment planning so that they can invest in more high risk schemes and get high returns. Pension law allows employers to sign their employees up for 401 (K) scheme. This would push more people to sign up for the scheme and best part is that they can move out of the scheme as well.