Even though there are many Americans worried about outliving their savings, Americans do have more than $11 trillion saved in retirement plans. The government has made some changes this week that will make it easier for Americans to transfer to a 401k annuity from their company 401k plans. This information comes from The New York Times article, “New Treasury Rules Ease 401(k) Annuity Purchase,” by Mary Williams Walsh.
One of the biggest problems with the the 401k annuity transfer was that tax rules made it nearly impossible for any kind of a partial transfer. People had to take an all or nothing approach and put their entire 401k into an annuity or none of it. The government has relaxed the tax rules so that people will now be able to use just a portion of their 401k for an annuity and they won’t have to do all or nothing.
New rules will also make it easier for employers to get better terms from financial firms because employees will be able to see the fees being charged by these firms. Running lifetime annuities is not something that employers want to deal with, so the changes being made by the government excite insurance companies eager to run annuities from retirement plans. One change makes it easier for employers to work with insurance companies and other annuity providers so that 401 annuity transfers can be done at work and not through a separate advisor.
A treasury department spokesperson says that they are hoping for an increase in longevity insurance offerings. This type of annuity doesn’t start until 15 or more years into retirement and is meant for the time in life when people tend to run out of money. It usually starts around the age of 80 and is a perfect supplement for Social Security at a time when savings run out and health costs increase. It’s much cheaper of course than a traditional annuity because you plan to use it when you are much older and it will likely be used for a shorter period of time.
The maximum that can be spent on longevity insurance is now capped at 25%, so that no one is “hiding” money there. One more change the Treasury has made lies in the way it calculates minimum required distributions for those over 70. The amount you have to withdraw yearly from your 401k will now exclude money that was used to buy an annuity or longevity insurance.
Written by Rachel Summit
Follow Finance Mama on Twitter http://twitter.com/#!/financemama