Some Good News on Pensions

Bill Knox, a CFP with Regent Atlantic Capital in Chatham, New Jersey, says he's particularly excited about a few of the Act's provisions. First, the Act will allow non-spouse beneficiaries of a deceased retirement plan participant to transfer their shares of the decedent's plan benefit into an IRA, he explains.

"As someone who was a practicing ERISA lawyer for 25 years, I am most enthusiastic about the rule for non-spouse beneficiaries," he says. "It has griped me since 1974 that the surviving spouse of a deceased retirement plan participant was allowed to do a tax-free rollover from the plan into an IRA, but a surviving child could not do so and was frequently compelled to receive his or her entire share of the plan benefit as taxable income within a year or two after the parent's death."

Knox also likes the provision that allows IRA owners who have reached age 70 1/2 to make a direct charitable contribution from their IRAs of up to $100,000. Bob Wacker, a CFP with R.E. Wacker Associates in San Luis Obispo, California, agrees that clients will welcome this provision with open arms. He explains that the provision provides an exclusion from gross income for certain distributions given to charities of up to $100,000 from a traditional IRA or a Roth IRA, which would otherwise be included in income.

To qualify, however, "the charitable distribution must be made to a tax-exempt organization to which deductible contributions can be made, but it excludes donor-advised funds and private foundations," he says, and the provision is effective for two years through 2007. "For folks who either want to make a large donation that might otherwise be partially excluded because it exceeded 50% of their AGI, or for folks who don't itemize, this is a good opportunity to give to charity on a pre-tax basis."

Washington Bureau Chief Melanie Waddell can be reached at [email protected].