5 longevity annuity rules you need to know now

In recognition of the reality that many Americans will live well into their 80s, the Department of Treasury recently issued final rules making Deferred Income Annuities more accessible to those with good genes and perhaps inadequate savings.

The rules could be a game changer for how boomers, and their advisors, allocate 401(k) and IRA assets going forward.

On the following pages are a breakdown of the core provisions to the new regulations governing DIAs.

1. Defined contribution.

Defined contribution participants and IRA owners are now allowed to invest up to 25 percent of their account balances, or up to $125,000, in qualifying longevity annuity contracts, or QLACs.

That money will not be subject to the annual minimum distribution requirements governing 401(k) and individual retirement accounts that begin at age 70 1/2.

2. Longevity annuities

Longevity annuities will distribute cash at a set age, typically by 80 or 85.

If the owner of the annuity happens to die before they begin to receive benefits from the annuities, all is not lost.

The principal and premiums paid on the contract will be returned to the retirement account, where the money is subject to the same laws governing the inheritance of retirement accounts.

3. The IRS

What happens in the event that investors, and or their advisors, inadvertently distribute more than the 25 percent limit to a deferred annuity?

Perhaps you guessed it: The IRS will allow the mistake to be corrected without disqualifying the annuity contract.