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Retirement Planning > Retirement Investing > Annuity Investing

5 longevity annuity rules you need to know now

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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.

defined contribution1. 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.

longevity2. 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.


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.

Or maybe you didn’t. In any event, now you know.

lump sum payment4. The Lump-sum

As far as the lump-sum goes:

It’s important to know that lump-sum investments can be made into QLACs.

Also, salary deferrals can be incrementally made into the contracts.

In this regard, think of these lump-sums taking effect much as they do with a 401(k) plan.

cash value5. Cash value

Finally, there’s the issue of cash value:

Ultimately, the cash value of QLACs is subtracted from the rest of a retiree’s assets in a 401(k) or IRA when determining the required minimum distributions when they take effect.

To learn more about QLACs:

5 QLAC questions and answers

* Final longevity annuity regulations clear path for future growth

* IRS sheds light on longevity annuities


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