Yesterday, President Bush signed into law The Tax Increase Prevention and Reconciliation Act of 2006 (“TIPRA”). Although the new legislation contains a number of revenue raising initiatives and items impacting corporations, the following highlights the tax saving items for individuals:

DIVIDENDS AND CAPITAL GAINS:
The current law (due to expire 12/31/08) provides for a maximum dividend and capital gain rate of 15%. TIPRA extends this favorable rate through the end of 2010.

ALTERNATIVE MINIMUM TAX (“AMT”):
While the original 1969 law targeted the “wealthy” among us, the mess that is AMT continues to plague the everyday taxpayer. TIPRA provides yet another temporary patch. For 2006, the AMT exemption amount for married taxpayers increases to $62,550 (instead of dropping to $45,000) and $42,500 for unmarried individuals (instead of dropping to $33,750).

EXPANSION OF TAX CREDITS:
Previously, nonrefundable personal tax credits were available only to the extent that AMT exceeded the regular federal tax. Under TIPRA, these tax credits may be claimed to the full extent of an individual’s regular tax and/or AMT.

ROTH IRA CONVERSIONS:
Initial analysis of TIPRA suggests this change might be the most promising. Under current law, traditional IRAs may be converted to Roth IRAs only when modified adjusted gross income (“AGI”) does not exceed $100,000. Under TIPRA, the $100,000 limitation is eliminated beginning 1/1/2010.

We find this to be a promising development as everyone, not just those with AGI below $100,000, will be eligible to convert a traditional IRA to a Roth. It’s particularly relevant if higher personal income tax rates are in our future. (Editor’s Note: Famed PIMCO bond manager Bill Gross wrote in his May 2006 commentary that higher future personal income tax rates are a strong possibility. His prognostication flowed from an analysis of U.S. financial problems that used GM and its problems as a microcosm. We expect our next “random musing” to offer an analysis of Mr. Gross’ commentary.)

Finally, if the conversion occurs in 2010, a taxpayer has the option of including the income ratably in 2011 and 2012. Not bad!