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Treasury Allows Longevity Annuities

The Treasury Department issued a rule July 1 that essentially allows employees to convert part of their IRA or 401(k) balances into a longevity annuity. Under the rule, an IRA or 401(k) can allow participants to use $125,000 or up to 25 percent of their IRA or 401(k) — whichever is less — to buy a longevity annuity. The dollar limit will be adjusted for inflation in $10,000 increments. 

In addition: 

  • annuity contracts are excluded from the account balance when calculating required minimum distributions; and
  • a longevity annuity in an IRA or 401(k) can provide that the premiums a purchasing retiree who died paid but had not received as annuity payments will be returned to the account.
McDermott Will & Emery partner Joe Adams told Forbes that the final regs will introduce more employees to longevity annuities. Adams believes that longevity annuities will become more widespread after the Department of Labor issues regulations requiring employers to provide lifetime income statements. 

The final regulations go into effect the day they are published in the Federal Register — that is, July 2, 2014 — and apply to contracts purchased on or after that date. 

John Iekel is Senior Writer and Editor for the NTSA Net portal.