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President Obama and the tax-deferred annuity

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In the wake of President Obama’s 2013 budget, the Insured Retirement Institute (IRI) states “that while the proposed budget does not explicitly call for changes in the tax status of annuities for all, it is concerned about several proposed changes, including the elimination of certain tax incentives for retirement savings and new limitations on deductions for retirement contributions.”

One goal of the organization is to urge policymakers to protect financial security for working Americans by “maintaining the tax-deferred status of annuities for everyone.”

In a prepared statement, IRI president Cathy Weatherford said: “Our research has shown that the tax-deferred status of annuities has been pivotal in helping middle-income Americans utilize lifetime income strategies as part of their retirement savings plan.”

Weatherford goes on to say that the removal of this “incentive would not necessarily increase tax revenue, but certainly would add a new barrier that would prevent Americans from attaining lifetime income coverage. With today’s unprecedented retirement challenges, now more than ever, we need to protect the incentives available to help Americans attain a financially secure retirement. We look forward to working with the Administration and Congress to help all Americans access insured retirement solutions.”

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According to IRI research “middle- income Americans comprise the largest segment of annuity owners, with 80 percent of annuity owners having annual income of less than $100,000 and approximately two-thirds with earnings of less than $75,000.”

In their research paper, IRI provides a list that backs up the importance of the current tax treatment of annuities. I’ve provided highlights from that paper here:

Protect tax deferral of annuity earnings

  1. Today’s investors face unprecedented retirement income challenges–challenges that simply did not exist in earlier generations. The shift from defined benefit to defined contribution plans, longer life spans and the rising costs of health care are among the challenges that will put more of the burdens on saving for retirement on the shoulders of individual investors.
  2. IRI research shows that boomer expectations for retirement are clouded by concerns about savings and income. Three out of 10 boomers cite concern about having sufficient assets as a top issue and more than one-third of pre-retirees do not know the age at which they will retire.
  3. However, boomers who owned annuities have a higher confidence in their overall retirement expectations, with nine out of 10 believing they are doing a good job preparing financially for retirement.
  4. Annuities are designed to help provide guaranteed income for all Americans who seek to ensure a stable and secure financial future, regardless if they access to an employer-sponsored retirement plan.
  5. Annuities can play an important role in helping to address the potential challenges that retirees face, such as: longevity risk, entitlement risk, inflation risk and medical expense risk that all Americans must consider as they plan for retirement.

“We need to protect the incentives available to help Americans attain a financially secure retirement.”
~Cathy Weatherford