The Pension Protection Act was signed into law in August 2006 containing more than 900 pages of changes and refinements to regulations regarding defined benefit plans, defined contribution plans, individual retirement accounts and other issues related to retirement planning.
Hidden in the seemingly senseless banter are two secret treasures that few Americans know about.
Life Insurance for the Living
The first gem has to do with life insurance. Several years ago most carriers adopted provisions to allow insureds the ability to access their life insurance benefit while they were alive to help offset the enormity of end of life medical expenses. Known as the "Accelerated Death Benefit," it was included primarily to combat the selling off of life insurance policies to Life Settlement companies for the terminally ill. The main problem with the add-on was that the IRS hadn't decided if the pre-paid life insurance proceedes were income tax free like traditional life insurance payouts to beneficiaries.
The Pension Protection Act specifically codified that all life insurance benefits that are paid out to insureds while alive are totally free from income taxes if the insured is terminally ill and/or cannot perform 2 of the 6 activities of daily living - ADLs (bathing; dressing; eating; toileting; transferring; continence). While most insurance companies have installed the "Accelerated Death Benefit"in their newer policies, only a handful allow the life insurance benefit to be paid out TAX FREE to the insured if they are not terminal and simply cannot perform 2 of 6 ADLs as defined in the Pension Protection Act.
Estate Planning Specialists has extensively researched the industry to determine which carriers offer the most consumer beneficial Life/Chronic Care combo policies. The differences are dramatic. If you are interested feel free to call our toll free number 1-888-892-1102 and we will share with you the findings of our research.
Turning Tax Deferred Into TAX FREE
The next secret the Pension Protection Act had hidden amongst the verbal rubble becomes law on January 1, 2010 and affects annuities. Previously, when you earned interest in a single premium or flexible premium annuity and subsequently withdrew any money for whatever purpose, the withdrawal was considered interest first and principal second and therefore all gain was taxed at ordinary income tax rates the year following the withdrawal. As of New Year's Day 2010, because of a little know provision in the PPA, if you cannot perform 2 of the 6 ADLs or have lost your cognitive abilities, and your annuity is PPA compliant, all income extracted will be INCOME TAX FREE! The problem is the only a few annuities are currently PPA compliant.
Again Estate Planning Specialists has researched the annuity industry and can share with you the top carriers that offer this valuable benefit. Simply put, what this secret PPA provision means is that if you have a current annuity that is non-PPA compliant, which is the vast majority of annuities, should you need the money for long term medical care, the income will be taxable until you withdraw all your interest earnings. If you currently own a non-compliant annuity you can exchange it for a compliant LTC/combo annuity and all your withdrawals for Long-Term Care benefits will be completely TAX FREE.
One brand new annuity not only is PPA compliant it offers an exploding TAX FREE Long-Term Care benefit that increases your annuity deposit up to six times. Furthermore, the LTC benefit increases as the annuity account value increases and should you never use the money for long term medical expenses the remaining annuity value is paid out to your beneficiaries.
Look for more carriers offering PPA compliant annuities in the near future. Should you want to explore exchanging your non-compliant annuity with a PPA compliant annuity simply complete the Annuity/LTC combo Application Kit Request Form.
EGTRRA Made Permanent
Since the passage of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), American taxpayers have wondered if the 40-odd provisions set to sunset in 2010 would indeed cease and revert contribution, deferral and catch-up limits to pre-2001 levels. Thankfully, the Pension Protection Act made most of those previsions permanent. These include contribution, deferral and catch-up limits for IRA, 401(k), 403(b), SIMPLE IRA and SIMPLE 401(k), defined contribution plans and defined benefit plans.
Traditional to Roth IRA Rollovers
A glitch in the Tax Act of 2001 required that funds from an employer retirement plan had to be rolled to a Traditional IRA before being converted to a Roth IRA. The Pension Protection Act eliminated a step. Starting in 2008, funds from your employer retirement plan have been available to be rolled directly to a Roth IRA. Once money has been moved to a Roth IRA, additional earnings accumulate tax free.
Elimination of the $100,000 AGI Limitation Beginning 2010.
The new legislation also eliminated the Roth rollover ceiling starting in 2010, which prevented a person earning over $100,000 in modified adjusted gross income from converting to a Roth. Starting in 2010, anyone - regardless of income - can convert funds from a 401(k) plan to a Traditional or Roth IRA.
A Roth conversion is an individual decision that needs to analyzed specific to your situation. Please call our toll free number 1-888-892-1102 to request a comprehensive Roth Conversion Analysis the normal fee is $100, however for web visitors it is $49.
The EGTRRA 2001 Act had made withdrawals from College 529 Plans tax exempt. However, that feature was to go away in 2010. The Pension Protection Act has made this a permanent feature. While the withdrawals may only be used for education expenses, there are no taxes upon withdrawal.
Highlights of the 2006 Pension Protection Act