A longevity annuity is a deferred income vehicle with payouts beginning at an advanced age and continuing throughout an individual’s life.  This tool while nominally attractive at best makes sense in limited circumstances and at worst should be avoided by everyone saving for retirement.

Much like Twitter has had it easy for any halfwit to inform us he’s eating a ham sandwich the IRS’ recently issued final rules on longevity annuities will make it easy for the product pushers of the insurance/annuity world to invade the sacred 401(k) / IRA space.

Under the new rules the Required Minimum Distribution (“RMD”) rules have been amended so that longevity annuity payments will not need to begin prematurely in order to comply with those regulations.

The new rules expand the permitted longevity annuities in several respects including increasing the maximum permitted investment.  A 401(k) (or similar plan) or IRA may permit plan participants to use up to the lesser of $125,000 or 25% of their account balance to purchase a qualifying longevity annuity without concern about noncompliance with the age 70 1/2 RMD requirements.  (The dollar limit will be adjusted in $10,000 increments for cost-of-living increases.)

The final regulations also allow a “return of premium” death benefit.  Under the final rules a longevity annuity in a plan or IRA can provide that premiums paid but not yet received as annuity payments will be returned to accountholders when purchasers die before or after the age when annuity payments begin – an appealing option for individuals who may wish for their initial investment to go to their heirs.

Additionally the final regulations aim to protect individuals against accidental payment of longevity annuity premiums exceeding the limits. The final rules permit individuals who inadvertently exceed the 25% or $125,000 limits on premium payments to correct the excess without disqualifying the annuity purchase.