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Congress OKs key pension, tax changes

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in Small Business Tax

Congress has passed the new Pension Protection Act of 2006, marking the biggest changes to U.S. pension laws in more than 30 years. It extends more than 20 retirement-planning provisions, adds new restrictions for charitable deductions and affects dozens of other important tax rules. Here are the key changes (see our next issue for complete details and related tax-saving strategies):

• Requires gradual full funding of defined benefit plans.

• Sets higher deduction limits to create a funding cushion for pension plans.

• Makes permanent various retirement-saving incentives.

• Liberalizes rules to encourage employers to automatically enroll new hires in 401(k) plan.

• Allows investment advice by companies that sell investments. • Expands tax breaks for certain retirement plan withdrawals.

• Toughens rules for substantiating charitable donations.

• Permanently extends tax-free Section 529 distributions.

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