Taxes

Worker, Retiree, and Employer Recovery Act of 2008

President Bush signed into law H.R. 7327, the Worker, Retiree, and Employer Recovery Act of 2008 (Act), on Tuesday, December 23, 2008. This legislation waives 2009 Required Minimum Distributions (RMDs), makes various technical corrections to the Pension Protection Act of 2006 (PPA), and addresses various defined benefit pension plan issues. The Act provisions have varying effective dates.

Some of the key provisions included in the legislation are:

Waiving 2009 RMDs for IRA and retirement plan participants and beneficiaries. First year RMDs (those reaching 70 ½ in 2008), must be taken by April 1, 2009. If an individual's first year for which a minimum distribution is required is 2009 (e.g., the individual turns age 70-1/2 during 2009), no distribution is required to be made either during 2009 or by April 1, 2010. However, unless future legislation or rule changes waive the requirement to take minimum distributions for 2010, the required minimum distribution for 2010 must be made by December 31, 2010.
If the five-year rule applies to a beneficiary IRA account with respect to any decedent, the five year period is determined without regard to calendar year 2009 under the term of the Act. Thus, for example, for an account with respect to an individual who died in 2007, the five year period ends in 2013 instead of 2012.
Retirement plans must offer non-spouse beneficiaries direct rollovers to inherited IRAs beginning in plan years 2010.

If you have already removed your RMD for 2009, you may be able to roll these funds back into your IRA or another eligible retirement plan within 60 days of taking the RMD. However, please consult your tax advisor to determine what impact this legislation has on your individual tax situation.

Emergency Economic Stabilization Act of 2008

On October 3, 2008, President Bush signed into law the 'Economic Stabilization Act of 2008'. This legislation contained a provision to extend the IRA Charitable Distributions through 12-31-2009. The provision allows customers age 70 ½ or older to direct qualified IRA distributions of up to $100,000 to certain charitable organizations without the customers recognizing income and taking a charitable deduction. The qualified charitable distribution can be used to satisfy the required minimum distribution for Traditional IRAs. This provision was originally part of the Pension Protection Act of 2006 and expired on 12-31-2007.

View our complimentary Federal Tax Guides for 2008 (PDF 85 KB) and 2009 (PDF 321 KB) .

Tax relief: HEART Act of 2008

On June 18, 2008, President Bush signed into law the "Heroes Earnings Assistance and Relief Tax (HEART) Act of 2008." This legislation contains many types of tax relief for military personnel, and specifically offers tax-related benefits associated with employer-sponsored retirement plans, IRAs and Coverdell Education Savings Accounts (ESAs). Read a general overview for selected tax provisions of this legislation on statefarm.com®.

Pension Protection Act of 2006

On August 17, 2006, President Bush signed into law the Pension Protection Act of 2006 (PPA). This legislation includes a variety of provisions that protect savers and encourage retirement savings in IRAs and defined contribution plans. It also made permanent many retirement savings provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). The information presented here is intended to provide a general overview of selected tax provisions of this legislation. For assistance in determining how these provisions apply to your personal financial situation, please consult a tax advisor.

Defined Contribution Plans and IRAs

Qualified Reservist Distributions – Qualifying military reservists called to active duty (after 9/11/2001 and before 12/31/2007) can take distributions from an IRA or certain other retirement plans free from the 10% tax penalty and re-contribute those amounts to an IRA during the two years after active duty ends.
Saver’s Credit Permanence – The Saver’s Credit provides a credit (up to $1,000) to eligible taxpayers for contributions to IRAs and certain qualified retirement plans (QRPs). Established by EGTRRA, the credit was scheduled to expire after the 2006 tax year. The PPA makes the Saver’s credit permanent and indexes for inflation the income limits applicable to the credit.

IRAs

EGTRRA Permanence – EGTRRA increased IRA contribution limits, allowed individuals 50 and older to make catch-up contributions and expanded rollover opportunities. These provisions were scheduled to expire on December 31, 2010 but are made permanent by the PPA.
Indexed Income Limits – Modified adjusted gross income (MAGI) limits relating to Traditional IRA contribution deductibility and to Roth IRA contribution eligibility will be adjusted for cost of living in $1,000 increments.
Charitable Distributions – During 2006 and 2007, Traditional and Roth IRA participants age 70½ and older may have IRA distributions paid directly to qualified charities and exclude those distributions (up to $100,000 per year) from their income.

Defined Contribution Plans

EGTRRA Permanence – The PPA makes permanent the EGTRRA contribution and catch-up limits and portability provisions. The Roth contribution option for 401(k) and 403(b) plans was also made permanent.
Beneficiary Hardship Distributions – Participants may take hardship distributions (if allowed by their plans) for specific unforeseeable emergencies of their beneficiaries, even if the beneficiary is not a spouse or dependent.
Rollovers to IRAs – Beginning in 2007, non-spouse beneficiaries of QRPs, governmental 457(b) plans, and tax-sheltered annuity plans may directly transfer death benefits to an inherited IRA. Also, beginning in 2008, direct rollovers may be made to Roth IRAs from QRPs, governmental 457(b) plans, and tax-sheltered annuity plans. Roth IRA conversion eligibility rules will apply to these rollovers.
Periodic Benefit Statements – Plans are required to provide quarterly benefit statements to participants in plans that allow participant-directed investments and annually to participants in plans that do not allow participant-directed investments.
Simplified Form 5500 Filing – The threshold for filing Form 5500-EZ has been raised to $250,000. Simplified Form 5500 reporting will be available for plans with fewer than 25 participants. Both provisions are effective for plan years beginning 1/1/2007 or after.
Automatic Enrollment – Various incentives are provided for employers sponsoring 401(k), 403(b) and governmental 457(b) plans to include automatic enrollment features in their plans. The PPA preempts state laws prohibiting automatic enrollment. It also creates a new safe harbor 401(k) plan with automatic enrollment features beginning in 2008.

Adobe® Acrobat Reader® is required to view several links listed throughout this site. To download your free copy, click on the Get Adobe Acrobat Reader logo to the left.