[Deferred] Annuity Purchase Excluded from RMD Calculation

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fandango
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[Deferred] Annuity Purchase Excluded from RMD Calculation

Post by fandango »

I recived the attached from my CPA:

The IRS proposes to modify the RMD rules to allow a portion of a participant's retirement account to be set aside to fund the purchase of a deferred annuity. Participants would be able to exclude the value of this qualified longevity annuity contract (QLAC) from the account balance used to calculate RMDs. Under this approach, up to 25 percent of the account balance could be excluded. The amount is limited to 25 percent to deter the use of longevity annuities as an estate planning device to pass on assets to descendants.

Many of these changes are in proposed regulations and would not take effect until the government issues final regulations. The changes would apply to distributions with annuity starting dates in plan years beginning after final regulations are published, which could be before the end of 2012.


Has anyone else heard of these proposed changes by the IRS?
sscritic
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Re: Annuity Purchase Excluded from RMD Calculation

Post by sscritic »

Yes, but it is only proposed in someone's mind, not proposed in the official site for proposed regulation as far as I know.

Forum Policy:
Proposed regulations that are directly related in investing may be discussed when they are published for public comments.
Oops, I was wrong. The proposal has been published at Regulations.gov It is titled Longevity Annuity Contracts. Public comment ends May 3.

http://www.regulations.gov/#!documentDe ... -0005-0001

Discuss away!
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Mel Lindauer
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Re: Annuity Purchase Excluded from RMD Calculation

Post by Mel Lindauer »

Yes, this is allowed since it's already on it's second go round of public comments.

Here's a M* article that covers it in pretty good detail. http://www.morningstar.com/advisor/t/52 ... r-iras.htm
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fandango
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Re: Annuity Purchase Excluded from RMD Calculation

Post by fandango »

I would seem to me that a simpler solution would be to rework the RMD tables to reflect the impact of increasing longevity. In other words, reduce the RMD for earlier years of retirement to allow more money to be sheltered and available for the 80+ years.
Last edited by fandango on Mon Mar 12, 2012 7:29 pm, edited 1 time in total.
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Re: Annuity Purchase Excluded from RMD Calculation

Post by JDCPAEsq »

Limit of $100,000 makes this proposal somewhat limited in its use.
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Re: Annuity Purchase Excluded from RMD Calculation

Post by sscritic »

Is it really that limiting? How much income starting at 85 would you get if you bought a policy for $100,000 at age 70 (before RMD). I think nisiprius did some investigation of longevity insurance in a taxable account (I don't think there was a lot of information), but in an IRA, I think such a policy might be more attractive.

Some issues:
1) it reduces your RMD at 70.
2) it increases your taxable income at 85 (say), possibly by a lot.
3) there is no stretch. The income continues to the beneficiary (special rules for a 10 year age gap).

Let's get a discussion going about pros and cons. Would you consider it? This isn't my area, so I can't say a lot, but some of you must know a lot more than I do.

P.S. This isn't a request for statements about whether such policies should be offered, but a request for evaluation of such policies as investment vehicles (you know, the subject of this forum).
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Re: Annuity Purchase Excluded from RMD Calculation

Post by JDCPAEsq »

I guess I'm a bit turned off on longevity insurance because it wasn't available when I was younger. I recently investigated a NY Life longevity annuity policy which they advertised as available with benefits beginning at age 85. However, upon investigating further learned that if the applicant is over 70 years of age the maximum deferral allowed is five years. A policy holder can defer benefits one year on any SPIA so you are only gaining four years on such a policy. These policies are not yet widely available and the premiums I've seen seem much to steep for the benefits paid.
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Re: Annuity Purchase Excluded from RMD Calculation

Post by sscritic »

[Playing the other side of John again.]

If people who wouldn't buy a policy with taxable money are willing to buy one with tIRA money, then the market should become more competitive with lower prices. Wouldn't you expect more competitive pricing with a larger market? It's hard to sell insurance at a good price when the pool is really small.
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Re: Annuity Purchase Excluded from RMD Calculation

Post by JDCPAEsq »

sscritic wrote:[Playing the other side of John again.]

If people who wouldn't buy a policy with taxable money are willing to buy one with tIRA money, then the market should become more competitive with lower prices. Wouldn't you expect more competitive pricing with a larger market? It's hard to sell insurance at a good price when the pool is really small.
Yes, it seems to be a fairly new concept. I've played around with the calculations of a fair premium and my impression has been there is not enought of a discount for the substantial deferral of benefits with, of course, the risk of totally losing your premium if death before inception date. More entries into the field should bring better premiums.
John
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Re: Annuity Purchase Excluded from RMD Calculation

Post by rwwoods »

Does anyone know the current status of this IRS proposal?
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Re: Annuity Purchase Excluded from RMD Calculation

Post by Ron »

I would change the title to reflect that the discussion is tied to deferred annuities.

I/we already have an SPIA (Single Premium Immediate Annuity) which we purchased at the beginning of retirement.

When we purchased it, we were informed that the premium amount (from our rollover IRA) would not be considered in the age 70.5 RMD calculations.

Seeing the title of this thread, I immediately said to myself "why the question, that's the way it's always been".

However reading the detail, I see that the discussion is about one specific annuity.

- Ron
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Mel Lindauer
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Re: Annuity Purchase Excluded from RMD Calculation

Post by Mel Lindauer »

Ron wrote:I would change the title to reflect that the discussion is tied to deferred annuities.

I/we already have an SPIA (Single Premium Immediate Annuity) which we purchased at the beginning of retirement.

When we purchased it, we were informed that the premium amount (from our rollover IRA) would not be considered in the age 70.5 RMD calculations.

Seeing the title of this thread, I immediately said to myself "why the question, that's the way it's always been".

However reading the detail, I see that the discussion is about one specific annuity.

- Ron
Title edited to add the clarifying word [Deferred]
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Re: Annuity Purchase Excluded from RMD Calculation

Post by Retread »

rwwoods wrote:Does anyone know the current status of this IRS proposal?
I'm interested in this as well. I believe the temporary Reg. was issued by the IRS over 18 months ago. Any news?
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Re: [Deferred] Annuity Purchase Excluded from RMD Calculatio

Post by HueyLD »

..............
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sscritic
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Re: [Deferred] Annuity Purchase Excluded from RMD Calculatio

Post by sscritic »

New or old?
A public hearing on the proposed regulations relating to longevity and partial annuities will be held June 1, 2012, in Washington, DC. Comments are due by May 3.
The page "update" has a more recent date, but the content doesn't.

Page Last Reviewed or Updated: 14-Aug-2013

Oh wait, that's not right. I should fix that.

This Page Last Reviewed or Updated: 12-Nov-2013

I want that as my sig.
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wshang
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Re: [Deferred] Annuity Purchase Excluded from RMD Calculatio

Post by wshang »

Time to resurrect this discussion, since now it is a actionable reality.
http://www.kitces.com/blog/why-the-new- ... ncome-yet/
To be eligible as a QLAC, a longevity annuity must meet the following requirements:

- Only 25% of any employment retirement plan (or 25% across all pre-tax IRAs aggregated together) can be invested into a QLAC.

- The cumulative dollar amount invested into ALL QLACs across all retirement accounts may NOT exceed the LESSER of $125,000 (original regulations were only $100,000), or the aforementioned 25% threshold. The $125,000 dollar amount will be indexed for inflation, adjusted in $10,000 increments.

- The limitations will apply separately for each spouse with their own retirement accounts.

- The QLAC must begin its payouts by age 85 (or earlier)

- The QLAC must provide fixed payouts (not variable or equity-indexed), though it may have a cost-of-living adjustment (COLA)

- The QLAC cannot have a cash surrender value once purchased (i.e., it must be irrevocable and illiquid), but it can have a return-of-premium death benefit payable to heirs as a lump sum or a stream of income
For me, the real value comes when the QLAC is excluded when calculating RMD. I'd like to hear what other posters say, especially in regard to those of us with relatively large 401k, tIRA accounts.
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Re: [Deferred] Annuity Purchase Excluded from RMD Calculatio

Post by sscritic »

wshang wrote: I'd like to hear what other posters say.
Search in the search box for QLAC. Choose search tools and change any time to past month. You can then read what a lot of other posters have to say.

https://www.google.com/search?sitesearc ... &tbs=qdr:m
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Re: [Deferred] Annuity Purchase Excluded from RMD Calculatio

Post by LadyGeek »

This thread is now in the Investing - Theory, News & General forum. The topic covers both investing and RMDs (which belong in the personal finance forum). This discussion seems focused on the investing aspects.
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