On August 17, 2006, President Bush signed into law the Pension Protection Act of 2006. Several of the act's provision directly impact Individual Retirement Accounts (IRAs). Here are some of the significant changes:

Income Tax Refunds
When you file your 2006 taxes, you now have the option to have your tax refund directly deposited into your IRA. The new law is flexible and allows you to allocate your refund in up to three accounts. So if your refund is larger than what you'd planned to contribute to your IRA, you can redirect the excess into your checking account. You should first determine how much you can contribute and then figure out how to apply your refund.

Non-Spouse Beneficiaries
Among the act's numerous provisions were several that specifically benefit unmarried couples and married same-sex couples. First, a non-spouse beneficiary (or a same-sex spouse, who is considered a "non spouse" for Federal purposes) who inherits qualified plan assets, such as a 401(k) or a 403(b), can now roll over their interest into an IRA. This allows for the continued tax deferral of all accumulation while mandatory distributions are taken over their life expectancy. Previously, when a non-spouse inherited assets from a qualified retirement plan, the non-spouse was forced to withdraw most, if not all, assets immediately, triggering a large tax liability.

Second, the new law now allows 401(k) hardship withdrawals for hardships and unforeseen financial emergencies with respect to any person who is listed as a beneficiary under a 401(k) plan. This means that if a non-spouse is listed as a beneficiary to a 401(k) plan, they can potentially withdraw money from the 401(k) plan when they experience an unexpected financial emergency. Previously, this provision was only available for hardship expenses relating to legally recognized spouses and dependents.

You should note that these provisions apply to all non-spouses who are named beneficiaries of a retirement account, including siblings who name each other and parents who name their children

Qualified Charitable Deductions
The new law also offers certain taxpayers the ability to make charitable contributions directly from their IRA without having to declare the distribution as income. This strategy could potentially be more tax efficient than the old way of taking the distribution, reporting the income and taking the deduction on your taxes.

Of course, there are caveats. The following rules apply. First, the IRA owner must be at least 70 plus years of age. Second, the maximum amount that can be contributed is $100,000 per individual for both tax years 2006 and 2007. Third, the contribution must be made directly by the IRA trustee to the charitable organization. Lastly, the contributions must come from IRAs and do not apply to SEPs or SIMPLE IRAs.

This could be a wonderful planning opportunity if you are charitably inclined, since you can use a qualified charitable distribution to satisfy the IRA owner's required minimum distributions.

As with all tax and financial planning advice, you should consult with your own advisor for the specifics that apply to your unique situation.