The New Tax Act and Your IRA
Did you know that the amount that you can contribute to your IRA was going to go down to $2,000 in few years? Yep! Down!
I bet you’re saying “…but the amounts are increasing?” That’s right. It’s been increasing based on inflation but that increase was due to come to a screeching halt in 2010. The good news is the Pension Protection Act was signed on August 17, 2006 and now those increases are permanent. (Yeah!)
For 2006 and 2007, your maximum IRA contributions will be $4,000 and for 2008, the amount will be $5,000. After 2008, future amounts will be adjusted for inflation. For those of you over 50, you can contribute an extra $1,000 each year (this won’t be increased by inflation.). It’s too late to contribute to your 2005 IRA but you can contribute to your 2006 IRA account until April 16.2007. For additional information on IRAs, see IRS Topic 451.
The Retirement Savings Contribution Credit was also made permanent; it was due to expire after 2006. This is a credit that lower- and middle-income taxpayers can take in addition to their IRA deduction. For information on this credit, see IRS Tax Topic 610.
Now you can deposit your tax refund into your checking or savings account. You just enter your bank account number on page 2 of your tax return. Starting with your 2007 tax return, you will be able to directly deposit your refund into your IRA account the same way.
There is a new provision from the tax act for non-spouse beneficiaries of a retirement plan. Previously, only spouses could inherit a retirement and roll it over to an IRA in their name. Now, any beneficiary can follow those rules and not pay taxes on that rollover.
And there is a section of this tax act that charities are cheering about it. By age 70 ½, a taxpayer must take a certain amount out of their IRA accounts every year and pay tax on that amount. For 2006 and 2007, this taxpayer can directly give to a charity from an IRA account, meet the amount that had to be distributed, and not pay taxes on that distribution. The maximum amount that can be given to a charity is $100,000 per year.
That’s it for new information on your IRAs.