The Bush Tax Cuts: How did the 2006 tax cuts change the tax code?
The Pension Protection Act of 2006 (PPA) addressed regulations governing employer-sponsored pensions and included several tax provisions. PPA was the first act to make certain aspects of the 2001 tax law permanent, including the higher annual contribution limits to Individual Retirement Accounts (IRAs) and tax-free withdrawals from qualified tuition savings accounts. PPA also extended certain temporary rules concerning education-based tax credits and added provisions encouraging employer participation in automatic 401(k) pensions.
- Under PPA the limits for contributions to IRAs are $4,000 in 2006 and 2007, $5,000 in 2008, and indexed to inflation thereafter. PPA also makes permanent the higher contribution limits to 401(k) plans, which were initially raised under EGTRRA legislation and previously set to expire in 2010. The saver’s credit, which increases saving incentives for low-income households, was made permanent as well.
- PPA also made it easier for employers to automatically enroll employees in their defined-contribution pension plans and to set default contributions to these plans. Before PPA, certain states had restricted the ability of employers to automatically deduct such contributions from employee paychecks without written consent; PPA made these automatic deductions universally legal. Also, PPA instituted protections for employers concerned about their legal responsibility when they automatically selected investments for employee pensions.