At the urging of the American Council of Life Insurers (ACLI), Washington, D.C., the Internal Revenue Service has issued new guidance that will provide annuity policyholders under age 59 more flexibility in taking distributions from annuity contracts.In Notice 2004-15, the IRS says that annuitants age 59 or younger who are receiving annuity payments --a regular stream of income--from a life insurance company can revisit their insurer to restructure their payment plans. In effect, the IRS guidance allows these annuitants to restructure their payment schedules to take advantage of changing market conditions.
Prior to Notice 2004-15, these annuitants had only one opportunity to establish their payment schedule, based on their expected mortality and the accumulated amount in the contract. They would face a 10% federal income tax penalty for "early withdrawals" if they restructured their arrangements.
But now, for example, a person who began taking payments from their annuity when the market was down in 2002 may take advantage of this guidance. With the market improving over the past two years, account values for many have improved. This larger account can translate into a bigger monthly or yearly payment from the insurer.
"This IRS guidance extends to owners of non-qualified annuities the same tax treatment to people receiving annuity payments from their qualified annuities," says Laurie Lewis, ACLI vice president and chief counsel, Federal Taxes.
"This is real good news for people who have secured an income stream through an annuity. It further illustrates the flexibility of the product, and how its owners can use it to meet their current needs," she says.
Source: The American Council of LIfe Insurers
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