New Senate legislation could reduce the tax on lifetime annuity income by 50%.[@@]
The bill, which will be reintroduced in the next Congress in January 2005, is designed to give existing retirement income products a seat at the table when lawmakers start revamping Social Security.
The bill was introduced Tuesday by Sens. Gordon Smith, R-Ore., and Kent Conrad, D-N.D. A similar bill was introduced in the House much earlier in the legislative year by Rep. Nancy Johnson, R-Conn.
The House bill has a number of sponsors on both sides of the aisle, particularly on the House Ways and Means Committee, according to officials at Americans for Secure Retirement, Washington.
Under the proposal, individuals would not pay federal taxes on one-half of the income generated by annuities that make lifetime payments. There would be an annual limit of $20,000 on the amount an individual could exclude from federal taxes each year. For a typical American in the 25% tax bracket, this would provide an annual tax savings of up to $5,000, representatives of ASR estimate.
Shannon Hunt, an ASR spokeswoman, says Smith and Conrad introduced the bill in the final days of the 108th Congress to establish a clear priority for the attention of the 109th Congress.
“With Social Security and pension reform sure to be a major focus in the next Congress, it is critical that lawmakers address the need for consumers to have better options for better managing their savings,” Hunt says. “It’s a critical part of the equation that cannot be left out.”
Access to annuities is especially important for Americans who don’t have access to employer-based pensions, Hunt says.