IRS Proposes Neat New Way to
Address Retirement Longevity Risk
One
of the big problems in determining how much of your accumulated savings
you can spend each year in retirement results from the necessity of having
to plan on living well into your 90s to make sure that you have
enough money in case you actually live that long. While this risk can be
managed by buying an immediate annuity, many retirees balk at using
most of their accumulated savings to purchase an immediate
annuity when what they want is an annuity that starts at a later
age. However, the government's current minimum distribution rules
under Section 409 of the Internal Revenue Code made purchases of
annuities that deferred commencement after age 70 in qualified defined
contribution plans or IRA's difficult. In a welcomed change of
policy, the new proposed rules would permit a specified portion of accounts in
such plans to be used to purchase a "Qualified Longevity Annuity
Contract" (QLAC) without affecting the minimum distribution rules for
the remainder of the account.
Under
the proposed regulations, premiums for the QLAC could not exceed the lesser of
25% of the account balance or $100,000. The QLAC would provide for
distributions to start at some date in the future but not later than when
the contract holder attained age 85. No benefits could be
provided under the QLAC after the contract holder's death other than
life annuities payable to designated beneficiaries.
More
detail can be found in the proposed regulations published in the Federal
Register on February 2 of this year. It is important to note that under
the proposed rules, QLACs will not be available (and therefore cannot
be used) until the proposed regulations are finalized.
