It’s true – you can now use your 401(k) to purchase insurance or even an IRA in your efforts of protecting your retirement. The Treasury Department announced last year and the IRS is releasing rules that show the path to purchasing annuities with tax deferred retirement plan funds. Some are calling it another tool in the “retirement tool box”. But what about a closer look? Does it still look as promising?
Many are asking, “Why now?” The answer is simple: we’re living longer. Unfortunately, we didn’t necessarily plan for these longer lives or maybe we did and just underestimated what we might need. These policies are purchased at a small price and they’re left until you reach a certain age, which we’re hearing is around 80, though we’ll know more once those final rules are released to the public.
J. Mark Iwry, senior adviser to the Secretary of the Treasury and Deputy Assistant Secretary for Retirement and Health Policy offered a presser and in it, he explained, “As boomers approach retirement and life expectancies increase, longevity income annuities can be an important option to help Americans plan for retirement and ensure they have a regular stream of income for as long as they live.”
These gems are designed to deal with the shortcomings of the longevity annuities that often fall short in tax deferments. So far, what we know is that those with retirement plans, including 401(k) plans, IRAs and others can earmark up to 25 percent and no more than $125,000 for routing to these plans with no requirements of making an RMD on the funds. Those enrolled must begin taking payments on these annuities no later than age 85.
The goal for providers is to keep it simple; they’re not designed to offer a lot of intricacies, though there will be some leeway in terms of additional options, including even refunds for the purchase of the annuity should the person die before reaching the age of being able to use it. This is where good estate planning comes in, too.
Not only that, but new rules will also protect purchasers who exceed the 25 percent or $125,000 limit on premium payments, allowing them to correct the error without disqualifying the purchase. This is an added safety feature that will mean peace of mind for some. The money grows, the return is predictable to a large degree and frankly, the risks are minimal.
There are those who advocate a more aggressive effort, but for many, this is a safer option that fits well with many baby boomers. It’s less about the aggressive risk taking and more about the consistency and peace of mind.
In the coming days, we’ll begin to hear more about these opportunities, but you should know that they’re now available. If you’d like to learn more about how they fit into your estate planning efforts, give us a call. We’re happy to explore the many options these new vehicles offer.