Rep. Pomeroy Introduces Bill to Boost Annuity Tax Breaks

Rep. Earl Pomeroy (D-ND) and Rep. Ginny Brown-Waite (R-FL) have introduced the Retirement Security Needs Lifetime Pay Act (H.R. 2748). Similar to legislation introduced by Pomeroy in the 110th Congress, the bill contains several provisions to encourage retirees to create annuities as part of their retirement savings plans.

The bill excludes from income a portion of lifetime income payments received from IRAs, qualified retirement plans (other than defined benefit plans), and non-qualified annuities. It also excludes the value of longevity insurance from amounts subject to required minimum distributions (RMDs); and it clarifies the taxation of payments from deferred annuity contracts.

The bill's lifetime annuity provisions are the same as those in the Retirement Security for Life Act from the 110th Congress except life annuity payments from IRAs and qualified plans are now covered. Also, the annual exclusion for non-qualified annuities is now limited to $10,000 rather than $20,000 in the bill.

Additionally, it would exclude the value of longevity insurance from amounts subject to required minimum distributions (RMDs) and clarify the income tax treatment of partial annuitizations.

Employees would be offered an opportunity to participate or opt out of the IRA. Any employee who did not respond would be automatically enrolled at a default rate of three percent of employee's compensation. A low-cost standard type of default investment and a small number of low cost investment alternatives would be prescribed by statute or regulation.

We had heard about annuities and were investigating them for our IRAs. We also heard bad things about pushy brokers over the years. So when we went to the ImmediateAnnuities.com site we were skeptical about calling them. But whenever we called their staff was really friendly. They answered all our questions and one of their reps even told us that at our ages there was no advantage to buying the annuity with our IRAs. These guys are really honest!

Fred and Gloria Pollard

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Contributions by employees would qualify for the Saver's Credit. There would be no employer contribution or employer compliance with qualified plan requirements. A national Web site would provide information and education about the program. The proposal would become effective on January 1, 2012.

Outlook for the bill is uncertain — it has been referred to the Ways & Means Committee — but it is unlikely to have a separate hearing. If there is an opportunity, the language of the bill could be considered in the context of a larger tax/retirement bill.