The recently passed Pension Protection Act of 2006 puts in place some new rules that will affect many filers of 2006 tax returns. The legislation was geared at stabilizing corporate pension plans, but other provisions will have an affect on individuals. Some of the changes include:
- 401(k) enrollment is now automatic. Whereas new employees previously had to affirmatively sign up for the programs, now employers can automatically enroll them in the plans.
- The IRS will now offer taxpayers the option of having their refund deposited directly to an IRA.
- Starting in 2008, you may roll money from a traditional 401(k) into a Roth IRA if you meet certain requirements. You will have to pay tax on the amounts rolled (since 401(k) contributions are made with pre-tax money and Roth IRA contributions are made with post-tax money).
- Lower-income workers who contribute to retirement accounts continue to receive tax credits up to $1,000.
- Charitable donations of clothing and household items must be in good condition or better to qualify for a deduction.
- All cash donations now require documentation, such as a canceled check, a receipt, or a credit card bill to substantiate the amount.