President Bush requested that Congress reform America’s pension laws to provide stronger protections for the American workforce’s pensions. Congress responded by passing the PPA. The intent of the legislation is to improve the chances for a more secure retirement for the American worker by ensuring the opportunity for all Americans to build their retirement funds with greater access to information and investment advice and providing the worker with greater control over how their retirement accounts are invested.

The predominant design of the PPA is to improve the federal pension insurance system. In addition, the legislation addresses defined contribution plans, such as Individual Retirement Accounts (IRA) and 401(k)s, to help those in the workforce save for retirement. The PPA strives for financial independence for the American worker and helps to promote the same through easier participation in contribution plans. Under the new legislation, the higher contribution limits have been made permanent and the sunset provision, which would have terminated the higher contribution limits, have been repealed.

Some of the highlights of the PPA are:

• The provisions increasing the limits for IRA contributions, 401(k) contributions, 403(b) contributions and 457 contributions have been made permanent. The provisions regarding contributions to SIMPLE plans, profit sharing plans and contributions to SEP plans are also now permanent.

• The catch-up provisions which allow individuals who are currently 50 years of age or older to make additional contributions to their IRAs and other defined benefit plans are now permanent.

• Provisions regarding contributions to a company’s Roth 401(k) and Roth 403(b) are now permanent.

• The Saver's Credit (IRC Sec. 25B), which otherwise would have expired December 2006, is now permanent.

• Direct rollovers from retirement plans to Roth IRAs is allowed for distributions after December 31, 2007.

• The Secretary of the Treasury is requiring plans to change the hardship rules for plan participants to include hardship events which occur to the participant’s spouse, dependants and/or designated beneficiary(s) under the plan.

• Beginning December 31, 2006, the Inherited IRA rules have been broadened with respect to non- spouse qualified retirement plan beneficiaries, such as children, siblings and friends. Non-spouse qualified retirement plan beneficiaries will now be able to make direct trustee to trustee transfers to Inherited IRAs, thus allowing a lifetime payout option in lieu of the current law’s requirement of full distribution of the assets within five years of the participant’s death. It is important to note that a non-spouse qualified retirement plan beneficiary should consider speaking with their attorney or tax advisor about the possibility of waiting until the effective date of the provision before they take any distributions from a qualified plan.

• Taxpayers may to elect to have all or part of a tax refund paid directly into an IRA.

• Businesses are now required to pay weighty premiums if they under-fund their defined benefit plans.

• The PPA calls on private businesses to set aside money today in order to be able to pay their retired employees the monetary obligation to their employees’ retirements as promised.

The PPA propels reform of the federal pension laws in such a way that the American worker’s retirement nest egg is more secure through active participation in the various contribution plans.

Question
Dear Ms. Rogers,

What will happen to our community property assets when we move from a community property state to Florida? Also, my spouse and I are considering establishing a joint revocable trust as part of our estate plan to hold both our separate property and our community property. Is this advisable?

Sincerely,
Sunshine Bound

Answer
Dear Sunshine Bound:

As Florida is a common-law state, it is very important that you meet with your attorney to discuss the tax implications of placing your community property in a joint trust together with your and your spouse’s separate property. When you meet with your attorney you should provide detailed asset ownership information so that you have a paper trail that can be used in the future if you need to trace the acquisition of additional assets to either the community property assets or separate property assets you currently own.

The joint revocable trust you plan to establish is advisable, provided it contains the appropriate provisions that will protect the character of your community property. You do not want to inadvertently commingle your community property with other types of property, which can, and most likely will, convert its character (“transmute”) into something other than community property, i.e., jointly-held property. Remember, community property assets are taxpayer friendly in that both your half and your spouse’s half of your community property assets will receive a step-up in cost basis on any appreciation in the community property at the first spouse’s death, but only one-half of the community property’s value ultimately is included in the decedent's gross estate for federal estate tax purposes. Of course, a higher tax cost basis in the property may be a significant advantage to the surviving spouse. If the surviving spouse sells the property, a smaller gain, or greater loss, will result in a better tax consequence for the surviving spouse. Additionally, if the community property asset held by the surviving spouse is depreciable, the resulting depreciation deductions will be larger.

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This publication is intended for general information purposes only. It is not intended to constitute individual legal advice to any specific client.