Financial Planning magazine has an article on the recent decision to provide guidance for IRA holders to use IRA assets to purchase longevity annuities. While the guidelines have not been written, the decision is important, because it signals that the IRS will allow these annuities to be excluded from the asset base from which minimum distributions must be made, as long as the annuity meets the guidelines. The two limitations mentioned in the article are that the annuity payments must start by the first day of the month following the IRA owners' 85th birthday, and the total purchase price of all longevity annuities can not exceed the lesser of $100,000 an 25% of the total assets in all IRAs (except Roth IRAs).
The IRA market is an excellent market for longevity annuities. Expect several of the premier fixed annuity forms to market IRS compliant annuities shortly after the guidelines become finalized. Then, about three weeks after that, you can expect to see articles by practitioners, exploring creative means to maximize the tax efficiency of these transactions.
Longevity annuities address the biggest uncertainty in the retirement planning process: the planning horizon. Allowing a retiree to use what is often his largest pool of capital to employ this tool will be a huge benefit for investors.
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