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"Longevity insurance" gets boost with new IRS regs

7-1-2014 - Seniors worried about running out of money during their retirement years may find that "longevity insurance" provides a solution. Under IRS regulations effective July 1, 2014, a deferred income annuity may be purchased with funds from an IRA, 401K or other qualified plan, while excluding the funds in the annuity for the purpose of determining Required Minimum Distributions. You must begin drawing on the annuity no later than age 85. Up to 25% of the funds in the qualified plan, or $125,000, whichever is less, may be placed in the annuity. The limit is indexed to inflation.

The annuity effectively serves as "longevity insurance," guaranteeing an income stream in one's later years. This can provide peace of mind for both singles and married couples. Remember, when a spouse dies the survivor loses one Social Security check, and often, some or all of the deceased spouse's pension.

From an estate planning perspective, there may be another benefit: a return of premium feature. When the purchaser passes away, premiums paid but not yet received may be returned to the account, allowing the initial investment to be passed to heirs. If the contract includes a life annuity for the surviving spouse, the premiums may be returned after the second death.

We urge clients to exercise caution when evaluating any financial product, particulary annuities, which are so prone to abuse. However, depending on your needs, this deferred income annuity  -  "longevity insurance" - could be a smart strategy.

Insurance companies are in the process of devising products that comply with the new IRS regulations. Talk with your financial advisor.

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