By Steven Brostoff
Life insurers are praising a new Internal Revenue Service notice that provides owners of nonqualified annuities with more flexibility in taking distributions.
The notice, 2004-15, in effect applies the same guidance to distributions from nonqualified annuities as applies to qualified annuities. This means that by following the proper procedures, owners of nonqualified annuities will be able to receive distributions before age 59 without incurring a 10% penalty tax.
The IRS provided this guidance for qualified annuities in 2002 (Revenue Ruling 2002-62). Laurie Lewis, an attorney with the American Council of Life Insurers, says ACLI then asked IRS for guidance on whether the treatment should also apply to nonqualified annuities.
The key to the new guidance, Lewis says, is that owners of nonqualified annuities will have greater flexibility.