Legislation Would Waive
Tax On Annuity Income
Legislation eagerly awaited by the life insurance industry that would waive half the taxes on a guaranteed stream of income for life for consumers when they purchased an annuity has been introduced.
A bipartisan group of legislators introduced the Retirement Security for Life Act in both the House and Senate last week. The legislation, if enacted, would waive federal taxes on half of the income generated by the annuity, up to a maximum of $20,000 annually. For the typical retiree, it would provide a tax break of up to $5,000.
Sponsors of the legislation include Sens. Gordon Smith, R-Ore., and Kent Conrad, D-N.D., and Reps. Nancy Johnson, R-Conn., and John Tanner, D-Tenn.
“Were going to have big challenges in the coming years as more Americans retire,” Smith said. “We need to be looking at ways to help people plan for their futures. Providing tax incentives for annuities is one of the easiest and most important things we can do.”
The legislation has been introduced before in Congress but failed to be included in major legislation. However, it may have more momentum this time because President Bushs efforts to persuade Congress to reform Social Security are foundering due to members growing more fearful of the political fallout from doing so.
As an alternative to reforming Social Security, interest is growing in Congress for increasing incentives for workers to contribute more to IRAs, and tax incentives for purchasing annuities would fit into that idea. For example, House leaders said they are thinking of letting the Senate go first in tackling reform of Social Security, even though tax legislation such as this traditionally originates in the House. Thats because House members do not believe their constituents are embracing their proposals.
Jack Dolan, a spokesman for the American Council of Life Insurers, said, “The broad support for this bill reflects the growing recognition in Congress that consumers need the lifetime income from annuities to supplement Social Securitys lifetime income stream.
“We are hoping that this legislation becomes front and center in a discussion this year on ways to address Americans retirement security concerns,” Dolan added.
“The members behind the Retirement Security for Life Act are to be commended for recognizing that a true debate about retirement security must go beyond Social Security and savings accumulation,” said Elisabeth Gehl, director of public policy for Business Women/USA. “How people are going to manage their savings so they last is increasingly concerning for a vast number of Americans, especially women because they live longer and have less access to traditional pensions.”
Reproduced from National Underwriter Edition, February 18, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.