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Retirement Planning > Retirement Investing

A Slew Of Retirement Income Bills

By Arthur D. Postal

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Washington

Two senators and a Democrat in the House have introduced separate bills that further life insurers’ goal of having a product that offers investors an annuity that provides a tax-advantaged monthly payout for life after retirement.

The insurance industry is lobbying for creation of such tax-advantaged annuities to be called “paychecks for life.”

At the same time, Sen. Charles Grassley, R-Iowa, chairman of the Senate Finance Committee, and Sen. Blanche Lincoln, D-Ark., a committee member, introduced legislation last week that would provide an “above the line” federal income tax deduction for long term care insurance premiums and a $1,000 annual tax credit, which will grow to $3,000, to individuals with long term care needs or their caregivers.

The measure also would permit the inclusion of long term care policies in employer-sponsored cafeteria plans and flexible spending accounts.

The bill mirrors legislation that Grassley and former Sen. Bob Graham, D-Fla., introduced in the last Congress.

Regarding “paychecks for life,” the latest bill accomplishing that goal was introduced last week in the House by Rep. Earl Pomeroy, D-N.D. It would encourage workers to annuitize some of their retirement savings by excluding $5,000 of lifetime annuity payments from taxation each year. The Pomeroy bill excludes 50% of income from a nonqualified annuity, up to $5,000, and excludes 25% of income from a qualified annuity, up to $5,000.

Earlier this month, Sen. Gordon Smith, R-Ore., and Sen. Kent Conrad, D-N.D., introduced comprehensive retirement savings incentive legislation. Their bill includes a provision that provides a monthly tax-advantaged payout. Nonqualified plans would have a 50% exclusion up to $20,000, while qualified annuities would have a 10% exclusion up to $2,100.

Last month, Rep. Nancy Johnson, R-Conn., introduced legislation that excludes 50% of income from a nonqualified annuity, up to $20,000.

The Senate bill also encourages employers to enroll employees automatically in 401(k) plans and offers enhanced retirement asset management for those individuals without access to employer-sponsored plans.

The Smith-Conrad bill also would include an “automatic increase design” feature where employee contribution levels increase automatically each year unless workers opt out; expansion of the Saver’s Credit; facilitation of retirement savings through Flexible Spending Accounts; and, a provision enabling tax refunds to go directly to retirement accounts.

Rep. Earl Pomeroy’s bill would encourage workers to annuitize some of their retirement savings by excluding $5,000 of lifetime annuity payments from taxation each year

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