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| Solo 401k |
The U.S. Department of the Treasury
issued final rules relaxing the regulations for fixed-income vehicles
as a life expectancy hedge.
Internal Revenue Service (IRS) says the
final rules make longevity annuities more accessible to 401(k)s and
individual retirement accounts (IRAs). The final rules ease minimum
distribution requirements that have made it difficult for retirees to
hold longevity annuity products without the possibility of
jeopardizing the qualified status of their accounts.
“All Americans deserve security in
their later years and need effective tools to make the most of their
hard-earned savings,” says J. Mark Iwry, senior adviser to the
Secretary of the Treasury and Deputy Assistant Secretary for
Retirement and Health Policy.“Longevity income annuities can help
Boomers plan for retirement and provide a regular stream of income
for as long as they live.”
A longevity annuity is a type of
deferred income annuity that begins payments at a later age, say 80
or 85. Once payments begin the income stream continues throughout the
retiree's lifetime. The deferred income annuity can offer a solution
for retirees who want to use part of their lump sum savings to
protect against outliving their assets, and help them avoid the
prospect of limiting too muich spending in retirement.
Treasury officials say the final rules
make longevity annuities more available for retirement savers by
changing required minimum distribution regulations so that longevity
annuity payments will not need to begin prematurely in order to
comply with those regulations.
Instead of having all of their account
balance in annuities, retirees will be able to follow a combination
strategy that uses some of their savings to purchase guaranteed
income for life while maintaining other savings in other investments.
The final rules build upon the proposed rules, as follows:
A. Under the final rules, a 401(k), similar plan, or IRA custodian, may permit account holders to use up
to 25% of their account balance or $125,000, whichever is less,
to purchase a qualifying longevity annuity without concern about
noncompliance with the age 70½ minimum distribution requirements.
B. The dollar limit will be adjusted for
cost-of-living increases more frequently than under the proposed
rules (in $10,000 increments instead of the $25,000 increments).
C. Under the final rules, a longevity
annuity in a plan or IRA can provide that, if the retiree dies
before (or after) the age when the annuity begins, the premiums they
paid but have not yet received as annuity payments, will be returned
to their accounts. This option may be right for individuals seeking
solace that if they die before receiving the annuity, their initial
investment can go to their heirs.
D. The final rules permit individuals who
mistakenly exceed the 25% or $125,000 limits on premium payments to
correct the excess without disqualifying the annuity purchase.
E. The final rules ease the issuance of
longevity annuity contracts by allowing alternatives such as a
statement in an insurance certificate, rider, or endorsement relating
to a contract.
The improved availability of longevity
annuities in 401(k) plans and IRAs will ease access to a steady flow
of guaranteed income throughout a retiree’s later years and help
Americans improve their retirement security when they are most
vulnerable to outliving their financial assets or facing lowered
standards of living.
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