Qualified Longevity Annuity Contracts

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Qualified Longevity Annuity Contracts

Postby Retread » Sun Jun 30, 2013 9:31 am

There was a proposed IRS Regulation allowing these issued in early 2012 but I have heard nothing since. Anyone know the status of this? For those not familiar, this would allow a SPIA from an IRA with the first payment deferred until the annuitant's 85th birthday.
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Re: Qualified Longevity Annuity Contracts

Postby dhodson » Sun Jun 30, 2013 9:35 am

im not sure I see a significant advantage. You could always purchase a fixed deferred annuity and then annuitize at a later date. Why lock yourself into both the income generation and withdrawal phase at this point in time?
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Re: Qualified Longevity Annuity Contracts

Postby Retread » Sun Jun 30, 2013 9:39 am

dhodson wrote:im not sure I see a significant advantage. You could always purchase a fixed deferred annuity and then annuitize at a later date. Why lock yourself into both the income generation and withdrawal phase at this point in time?

Isn't one advantage that you can use IRA funds and exclude that amount from your RMD during the entire period of the deferral? Also, would you want to buy a deferred annuity inside an IRA?
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Re: Qualified Longevity Annuity Contracts

Postby dhodson » Sun Jun 30, 2013 10:06 am

Retread wrote:
dhodson wrote:im not sure I see a significant advantage. You could always purchase a fixed deferred annuity and then annuitize at a later date. Why lock yourself into both the income generation and withdrawal phase at this point in time?

Isn't one advantage that you can use IRA funds and exclude that amount from your RMD during the entire period of the deferral? Also, would you want to buy a deferred annuity inside an IRA?
Bruce


I cant say about the first since Im not sure if the product exists or not in the form you are describing.

No you typically don't want to buy a deferred annuity inside an ira but isn't that exactly what you are doing with the money before age 85 but giving it a different name?
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Re: Qualified Longevity Annuity Contracts

Postby bsteiner » Sun Jun 30, 2013 10:12 am

The IRS issued two revenue rulings and proposed regulations.

Revenue Ruling 2012-3 provides that if a deferred annuity is purchased in a defined contribution plan, the qualified joint and survivor annuity (QJSA) and qualified preretirement survivor annuity (QPSA) rules won't apply to the rest of the plan, assuming the plan separately accounts for the annuity. http://www.irs.gov/pub/irs-drop/rr-12-03.pdf.

Revenue Ruling 2012-4 allows a participant to roll money from a defined contribution plan to a defined benefit plan so that he/she can use the money to obtain an additional annuity from the defined benefit plan. http://www.irs.gov/pub/irs-drop/rr-12-04.pdf.

The proposed regulations simplify the calculation of benefits in a defined benefit plan where a participant elects a partial lump sum and a partial annuity. Some participants might prefer a partial lump sum and a partial annuity to either a full lump sum or a full annuity. http://www.legalbitstream.com/scripts/i ... ef00/2/doc.

The proposed regulations also provide that if a portion of the account balance in a defined contribution plan or IRA is used to purchase a longevity annuity, the value of the longevity annuity will not be taken into account in calculating required minimum distributions. This special treatment is limited to longevity annuities purchased with not more than the lesser of 25% of the account balance or $100,000, and the annuity payments must begin no later than age 85. http://www.legalbitstream.com/scripts/i ... ef00/1/doc.

For a more detailed explanation of the reasoning behing this, see Executive Office of the President, Council of Economic Advisers, “Supporting Retirement for American Families” (Feb. 2, 2012): http://www.whitehouse.gov/sites/default ... _final.pdf.

Someone of modest means might consider a longevity annuity to hedge against the risk of living too long and running out of money, though I'm not aware of anyone who has purchased such an annuity.
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Re: Qualified Longevity Annuity Contracts

Postby Retread » Sun Jun 30, 2013 10:39 am

bsteiner wrote:The proposed regulations also provide that if a portion of the account balance in a defined contribution plan or IRA is used to purchase a longevity annuity, the value of the longevity annuity will not be taken into account in calculating required minimum distributions. This special treatment is limited to longevity annuities purchased with not more than the lesser of 25% of the account balance or $100,000, and the annuity payments must begin no later than age 85. http://www.legalbitstream.com/scripts/i ... ef00/1/doc.

For a more detailed explanation of the reasoning behing this, see Executive Office of the President, Council of Economic Advisers, “Supporting Retirement for American Families” (Feb. 2, 2012): http://www.whitehouse.gov/sites/default ... _final.pdf.

Someone of modest means might consider a longevity annuity to hedge against the risk of living too long and running out of money, though I'm not aware of anyone who has purchased such an annuity.

Thanks, Bruce. You seem to confirm that the proposed reg is not yet final. It is my understanding that Qualified Longevity Annuities cannot be issued until the reg does become final.

You say that you are not aware of anyone who has purchased a longevity annuity which, of course, would be non qualified. Now you are :happy and that person, of more than modest means, purchased it to help insure a continued generous retirement income for life.
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Re: Qualified Longevity Annuity Contracts

Postby Retread » Sun Jun 30, 2013 8:00 pm

dhodson wrote:I cant say about the first since Im not sure if the product exists or not in the form you are describing.


Yes, the product exists in the form of a longevity annuity that begins payments as late as age 85. I own one. As I tried to explain earlier, IRA funds cannot be used at this point until the proposed IRS Reg becomes final
allowing IRA funds to be used and excluding this amount from the amount on which the RMD is calculated. My question relates to the status of this regulation.
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Re: Qualified Longevity Annuity Contracts

Postby dhodson » Sun Jun 30, 2013 9:45 pm

Retread wrote:
dhodson wrote:I cant say about the first since Im not sure if the product exists or not in the form you are describing.


Yes, the product exists in the form of a longevity annuity that begins payments as late as age 85. I own one. As I tried to explain earlier, IRA funds cannot be used at this point until the proposed IRS Reg becomes final
allowing IRA funds to be used and excluding this amount from the amount on which the RMD is calculated. My question relates to the status of this regulation.
Bruce



that's why I phrased the statement as such "not in the form you are describing" which was meant not within an IRA. since the rules aren't final, its pretty much impossible to know the rules on RMD. Still I don't see this worth doing for most especially at this time since its still pretty much a deferred annuity that you later annuitize. Given current interest rates, I wouldn't want to lock up money this way. Im glad you are happy with your purchase since it is important to be happy with whatever one decides.
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Re: Qualified Longevity Annuity Contracts

Postby Oicuryy » Sun Jun 30, 2013 10:31 pm

dhodson wrote:im not sure I see a significant advantage. You could always purchase a fixed deferred annuity and then annuitize at a later date. Why lock yourself into both the income generation and withdrawal phase at this point in time?

There is a difference between deferred annuities and longevity annuities. Deferred annuities are revocable. Longevity annuities are not.

You can withdraw money from a deferred annuity any time before annuitizing. If you die before annuitizing a deferred annuity your beneficiary gets the death benefit.

The only way you can get money out of a longevity annuity is through the annuity payouts. If you die before the payouts begin your survivors get nothing.

Longevity annuities cost less than deferred annuities for a given level of future annuity payments. This is because many if not most buyers will not live long enough to get any payouts. Only people who are hit by the longevity risk will get a payout.

The same thing is true for many other types of insurance. You don't get anything from your fire insurance if your house does not burn down. You don't get anything from your car insurance if you never have an accident.

Annuities are insurance not investments.

The timetable hidden on this page says the final rule was supposed to be issued in June.
http://www.regulations.gov/#!docketDeta ... -2012-0005

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Re: Qualified Longevity Annuity Contracts

Postby dhodson » Mon Jul 01, 2013 12:09 am

Oicuryy wrote:
dhodson wrote:im not sure I see a significant advantage. You could always purchase a fixed deferred annuity and then annuitize at a later date. Why lock yourself into both the income generation and withdrawal phase at this point in time?

There is a difference between deferred annuities and longevity annuities. Deferred annuities are revocable. Longevity annuities are not.

You can withdraw money from a deferred annuity any time before annuitizing. If you die before annuitizing a deferred annuity your beneficiary gets the death benefit.

The only way you can get money out of a longevity annuity is through the annuity payouts. If you die before the payouts begin your survivors get nothing.

Longevity annuities cost less than deferred annuities for a given level of future annuity payments. This is because many if not most buyers will not live long enough to get any payouts. Only people who are hit by the longevity risk will get a payout.

The same thing is true for many other types of insurance. You don't get anything from your fire insurance if your house does not burn down. You don't get anything from your car insurance if you never have an accident.

Annuities are insurance not investments.

The timetable hidden on this page says the final rule was supposed to be issued in June.
http://www.regulations.gov/#!docketDeta ... -2012-0005

Ron



yes that is why I said why lock yourself into both. I could probably (although not guaranteed) get a higher payout with a boglehead style investment to age 85 then a spia. If I decide I don't want the spia (a good reason might be bc I develop a bad health condition where im not going to live that long) then I don't have to hand over my money. I didn't mean to give the impression that purchasing a deferred annuity was desirable.
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Re: Qualified Longevity Annuity Contracts

Postby Retread » Mon Jul 01, 2013 8:48 am

dhodson wrote:Im glad you are happy with your purchase since it is important to be happy with whatever one decides.

Thank you for this comment, although I can't resist pointing out that, as an attorney, CPA, & retired bank executive, my decision was based on a complete understanding of the product and all the surrounding facts and circumstances.
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Re: Qualified Longevity Annuity Contracts

Postby Oicuryy » Mon Jul 01, 2013 5:38 pm

This blog post says the IRS is still working on the final regulations.
http://blogs.marketwatch.com/encore/201 ... annuities/

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Re: Qualified Longevity Annuity Contracts

Postby Retread » Mon Jul 01, 2013 6:00 pm

Thanks very much, Ron. That's the information I had been unable to find.
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