Rural Retirees May Get a Break

Retired rural Americans soon may be able to avoid paying taxes on up to 50 percent of the income from a nonqualified lifetime annuity, boosting their ability to maintain their standard of living. Two companion bills, one in the Senate and one in the House, would provide that relief.

“With the recent economic down turn, many Americans, including many in the agricultural sector who do not have employer retirement plans, watched their retirement savings drastically decrease,” says Marcie Williams, president of American Agri-Women, which is a member of the Americans for Secure Retirement coalition. “Middle-class Americans will have to evaluate their retirement savings to ensure they do not outlive their financial resources.”

A recent study conducted by Ernst & Young indicated that, without making serious reductions to their standard of living (by as much as 51 percent in some cases), “a majority of middle-income Americans could expect to outlive their financial resources.”

The Bills

Bill Waldie, chairman of the coalition, explains the importance of the bills.

“This legislation is a critical component of retirement policy and we are pleased that Congress is making helping Americans secure a financially sound retirement a priority,” he says. “This is an important step toward addressing the anxiety many Americans feel toward their financial outlook during retirement.”

The bills would encourage retirees to receive some of their retirement savings in the form of guaranteed lifetime income. Included in the bills are provisions that would give a 50 percent tax exclusion on the annual income from a nonqualified lifetime annuity up to $10,000 per year in the House bill and up to $20,000 per year in the Senate bill.

According to the coalition, a lifetime annuity is the only financial vehicle that delivers a steady stream of income for life.

Additionally, the bills would exclude from taxes 25 percent of lifetime income payments from Individual Retirement Accounts, qualified plans and similar employer-sponsored retirement savings plans other than defined benefit plans, according to a press release. The bill also excludes the value of longevity insurance from amounts subject to required minimum distributions and clarifies the taxation of partial annuity payments.

Sens. Kent Conrad, D-N.D., and Pat Roberts, R-Kan., have introduced their bill, the Retire Security for Life Act, in the Senate. Both serve on the tax-writing Finance Committee.

“Under this legislation, working Americans will have the tools to make saving for retirement easier, and make those savings last,” Conrad says. “Workers nearing retirement today face many uncertainties, with serious questions about the future. Here, we have an opportunity to provide working families some ways to make their retirement secure.”

In the House, Reps. Earl Pomeroy, D-N.D., and Ginny Brown-Waite, R-Fla., have introduced their bill, the Retirement Security Needs Lifetime Pay Act.

“For years, the federal government has recognized its duty to assist American families in building a retirement nest egg,” Pomeroy says. “Saving and investing for the long term is extremely important, especially in these challenging times. A greater retirement challenge lies ahead: managing assets to make sure that your retirement savings last a lifetime. The Retirement Security Needs Lifetime Pay Act will provide families with incentives to plan for a secure lifelong retirement.”

Source: conrad.senate.gov - 06-18-2009