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April 07, 2002 at 08:00 PM
Why The Lifetime Annuity Payout Legislation Should Be Supported
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In November 2001, the Lifetime Annuity Payout Act, H.R. 3320, was introduced in the House of Representatives by a bipartisan group of Representatives–Phil English, R-Pa., Karen Thurman, D-Fla., and Nancy Johnson, R-Conn.
In this article, I will tell you why I think you should pay attention to this bill and support its enactment.
What would the Lifetime Annuity Payout Act do?
As its sponsors recently explained in a letter to other members of the House, H.R. 3320 “encourages individuals to use annuities to guarantee themselves lifetime retirement income.”
The proposal provides this encouragement by making available a tax incentive to those who use after-tax dollars, i.e., monies not held in a qualified plan, to purchase life contingent annuity payments. H.R. 3320 would tax lifetime annuity payments at capital gains tax rates rather than at the higher rates applicable to ordinary income.
Although the typical non-qualified annuity owner is in the 28% tax bracket, under current law, annuity payments can be taxed at rates as high as 38.6%. Under H.R. 3320, lifetime annuity payments would not be taxed at rates higher than 20%, and for many people, the maximum rate would be 10%.
What types of annuity payments would be eligible for the lower tax rates?
Any type of life contingent annuity payment would be eligible for the lower rates. For example, payments under a life annuity with 10 years of payments guaranteed would be eligible. Payments under a life annuity that guaranteed a return of premium paid into the contract also would be covered. Both fixed and variable annuity payments are covered by the bill.
Likewise, life contingent payments resulting from the purchase of an immediate annuity and those resulting from the annuitization of a deferred annuity would receive the lower tax rate. H.R. 3320 would apply to all eligible annuity payments received in calendar years beginning after the date of enactment.
What is the reasoning behind the Lifetime Annuity Payout Act?
In recent years, Congress has wisely focused on the need for all Americans to save and accumulate assets for their retirement. This focus has resulted in enactment of new and additional incentives for employers to establish and maintain qualified retirement plans and for employees to participate in those plans.
