Big Annuity News: Treasury Rules In Favor of Deferred Income Annuities

A quick online search for annuities will tell you that the big news today is the Treasury’s ruling on deferred income annuities in retirement plans.  Business Insurance published Investment News’ article “Treasury allows longevity annuities in retirement plans,” by Darla Mercado.  The ruling that will make it easier for retirement plan participants to use deferred income annuities in their plans came across on Tuesday of this week.  As Americans live longer lives, it is next to impossible for anyone to guess how long they will live.  When you don’t know how long you will live, it’s much easier to run out of money in retirement because it’s hard to determine how much of your money you can spend.  You also have to worry about managing the risk in your retirement portfolio.  Deferred income annuities eliminate longevity and investment risk for you.  The Treasury Department has been looking into this issue and announced their ruling at an annual Insured Retirement Institute meeting held in Washington D.C.

The Treasury Department and the Department of Labor have been researching the use of deferred income annuities in retirement plans for years.  These annuities, which are sometimes referred to as longevity insurance, allow you to defer receiving income payments until later in life.  Some people wait to start receiving their income payments until as late as age 80, which previously posed a problem when it came to the required minimum distribution rule.  Although both federal Departments involved believe that deferred income annuities will benefit people in their retirement years, retirees have been forced to take withdrawals from qualified retirement plans by the age of 70 1/2.  Tuesday’s ruling eliminates that requirement for money in retirement plans that is held as a deferred income annuity account.  This qualifying longevity annuity contracts rule says that the retirement account money in a deferred income annuity does not count towards a person’s required minimum distribution.  This way, no one has to start receiving annuity payments before they want to.

Currently, those who have money in a 401k plan or IRA can use the lesser value of $125,000 or 25% of their account value to purchase a deferred income annuity.  That current limit will be adjusted as the cost of living increases in the future.  A return of premium death benefit can also be added to the qualifying longevity annuity.  If you purchase an annuity that is higher than the 25% or $125,000 limit, you are able to make a correction without having your annuity purchase disqualified.  In this final ruling, the Treasury Department says that an insurance certificate, rider or endorsement can be used to show that you have a qualifying longevity annuity for the purpose of avoiding a required minimum distribution of that money.  This new ruling will help many Americans defer their retirement funds later in life without being forced to take annuity payments sooner than they had planned.

Written by Rachel Summit

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