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May 01, 2007 at 08:00 PM
The Pension Protection Act of 2006 (PPA) is a step in the right direction, both by shoring up standards for defined benefit pension plans, and by making permanent (if there is such a concept in Congress) many of the changes found in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA).
For the average investor, as well as advisors serving this market, the repeal of the “sunset provisions” is probably the most important aspect of this Act. Prior to PPA, many of the increased contribution limits available to an investor when funding his retirement accounts were set to expire in 2011. Under PPA, this is no longer the case. Some highlights regarding these limits include:
Employee deferral limits: The employee deferral limit for 401(k), 403(b), and 457 plans for 2007 is $15,500, and will be indexed for inflation each year thereafter.
Age 50 catch-up: Starting the year one turns age 50, EGTRRA allowed an additional “catch-up” contribution for 401(k), 403(b), 457, IRA, and SIMPLE plans. This has been made permanent, and currently 401(k), 403(b), and 457 plans allow an additional $5,000 contribution amount, with IRAs allowed an additional $1,000 and SIMPLEs an additional $2,500.
Increased IRA and Roth IRA contribution limits: The contribution limit for IRAs will increase to $5,000 in 2008 (from $4,000 in 2007), and then will be indexed for inflation going forward.
