Retirement Security for Life Act of 2004 - Amends the Internal Revenue Code to allow an exclusion from gross income for 50 percent of the amount otherwise includible in gross income as guaranteed payments from certain annuity or life insurance contracts. Limits the amount of such exclusion to $20,000 in any taxable year. Provides for an inflation adjustment of the $20,000 limitation beginning in 2006.
[Congressional Bills 108th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4849 Introduced in House (IH)]
108th CONGRESS
2d Session
H. R. 4849
To amend the Internal Revenue Code of 1986 to encourage guaranteed
lifetime income payments from annuities and similar payments of life
insurance proceeds at dates later than death by excluding from income a
portion of such payments.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
July 15, 2004
Mrs. Johnson of Connecticut (for herself, Mr. Tanner, Mr. English, and
Mrs. Jones of Ohio) introduced the following bill; which was referred
to the Committee on Ways and Means
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to encourage guaranteed
lifetime income payments from annuities and similar payments of life
insurance proceeds at dates later than death by excluding from income a
portion of such payments.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Retirement Security for Life Act of
2004''.
SEC. 2. FINDINGS.
The Congress finds the following:
(1) Just over half of all United States workers actively
participate in tax-deferred retirement savings plans which are
comprised of assets of nearly $5,000,000,000,000.
(2) Congress has historically promoted policies that will
encourage greater private savings for retirement, but has not
devoted the same attention to developing policies that will
help people manage the savings once they reach retirement age;
(3) Qualified retirement savings plans are the product of
such policies and provide Americans with valuable resources for
their later years.
(4) Non-qualified plans provide an additional retirement
benefit.
(5) 77,000,000 members of the baby boom generation are
approaching retirement age and demographic data indicate that
members of this generation can expect to live on average an
additional 20 to 30 years after retirement.
(6) The commitment of Congress to creating incentives to
promote private savings and to manage accumulated savings does
not supercede the responsibility of Congress to reduce the
national debt and bring the Federal budget back into balance.
(7) Failure to address long term savings issues will only
serve to increase the strain on Federal programs such as social
security, medicare, and medicaid.
(8) The national debt and annual budget deficits pose a
significant risk not only to national security but also to the
long-term solvency of the social security and medicare
programs.
(9) Encouraging the prudent management of accumulated
savings and personal responsibility for retirement income
security will reduce the potential financial threat to well-
established entitlement programs for senior citizens.
(10) The budget impact of this Act will be mitigated
through the legislative process so that the enactment of this
Act will not add to the $7.2 trillion national debt.
SEC. 3. EXCLUSION FOR LIFETIME ANNUITY PAYMENTS.
(a) Lifetime Annuity Payments Under Annuity Contracts.--Subsection
(b) of section 72 of the Internal Revenue Code (relating to annuities)
is amended by adding at the end thereof the following new paragraph:
``(5) Exclusion for lifetime annuity payments.--
``(A) In general.--In the case of lifetime annuity
payments received under one or more annuity contracts
in any taxable year, gross income shall not include 50
percent of the portion of lifetime annuity payments
otherwise includible (without regard to this paragraph)
in gross income under this section. For purposes of the
preceding sentence, the amount excludible from gross
income in any taxable year shall not exceed $20,000.
``(B) Cost-of-living adjustment.--In the case of
taxable years beginning after December 31, 2005, the
$20,000 amounts in subparagraph (A) shall be increased
by an amount equal to--
``(i) such dollar amount, multiplied by
``(ii) the cost-of-living adjustment
determined under section 1(f)(3) for the
calendar year in which the taxable year begins,
determined by substituting `calendar year 2004'
for `calendar year 1992' in subparagraph (B)
thereof.
If any amount as increased under the preceding sentence
is not a multiple of $500, such amount shall be rounded
to the next lower multiple of $500.
``(C) Application of paragraph.--Subparagraph (A)
shall not apply to--
``(i) any amount received under an eligible
deferred compensation plan (as defined in
section 457(b)) or under a qualified retirement
plan (as defined in section 4974(c)),
``(ii) any amount paid under an annuity
contract that is received by the beneficiary
under the contract--
``(I) after the death of the
annuitant in the case of payments
described in subsection
(c)(5)(A)(ii)(III), unless the
beneficiary is the surviving spouse of
the annuitant, or
``(II) after the death of the
annuitant and joint annuitant in the
case of payments described in
subsection (c)(5)(A)(ii)(IV), unless
the beneficiary is the surviving spouse
of the last to die of the annuitant and
the joint annuitant, or
``(iii) any annuity contract that is a
qualified funding asset (as defined in section
130(d)), but without regard to whether there is
a qualified assignment.
``(D) Investment in the contract.--For purposes of
this section, the investment in the contract shall be
determined without regard to this paragraph.''.
(b) Definitions.--Subsection (c) of section 72 of such Code is
amended by adding at the end thereof the following new paragraph:
``(5) Lifetime annuity payment.--
``(A) In general.--For purposes of subsection
(b)(5), the term `lifetime annuity payment' means any
amount received as an annuity under any portion of an
annuity contract, but only if--
``(i) the only person (or persons in the
case of payments described in subclause (II) or
(IV) of clause (ii)) legally entitled (by
operation of the contract, a trust, or other
legally enforceable means) to receive such
amount during the life of the annuitant or
joint annuitant is such annuitant or joint
annuitant, and
``(ii) such amount is part of a series of
substantially equal periodic payments made not
less frequently than annually over--
``(I) the life of the annuitant,
``(II) the lives of the annuitant
and a joint annuitant, but only if the
annuitant is the spouse of the joint
annuitant as of the annuity starting
date or the difference in age between
the annuitant and joint annuitant is 15
years or less,
``(III) the life of the annuitant
with a minimum period of payments or
with a minimum amount that must be paid
in any event, or
``(IV) the lives of the annuitant
and a joint annuitant with a minimum
period of payments or with a minimum
amount that must be paid in any event,
but only if the annuitant is the spouse
of the joint annuitant as of the
annuity starting date or the difference
in age between the annuitant and joint
annuitant is 15 years or less.
``(iii) Exceptions.--For purposes of clause
(ii), annuity payments shall not fail to be
treated as part of a series of substantially
equal periodic payments--
``(I) because the amount of the
periodic payments may vary in
accordance with investment experience,
reallocations among investment options,
actuarial gains or losses, cost of
living indices, a constant percentage
applied not less frequently than
annually, or similar fluctuating
criteria,
``(II) due to the existence of, or
modification of the duration of, a
provision in the contract permitting a
lump sum withdrawal after the annuity
starting date, or
``(III) because the period between
each such payment is lengthened or
shortened, but only if at all times
such period is no longer than one
calendar year.
``(B) Annuity contract.--For purposes of
subparagraph (A) and subsections (b)(5) and (w), the
term `annuity contract' means a commercial annuity (as
defined by section 3405(e)(6)), other than an endowment
or life insurance contract.
``(C) Minimum period of payments.--For purposes of
subparagraph (A), the term `minimum period of payments'
means a guaranteed term of payments that does not
exceed the greater of 10 years or--
``(i) the life expectancy of the annuitant
as of the annuity starting date, in the case of
lifetime annuity payments described in
subparagraph (A)(ii)(III), or
``(ii) the life expectancy of the annuitant
and joint annuitant as of the annuity starting
date, in the case of lifetime annuity payments
described in subparagraph (A)(ii)(IV).
For purposes of this subparagraph, life expectancy
shall be computed with reference to the tables
prescribed by the Secretary under paragraph (3). For
purposes of subsection (w)(1)(C)(ii), the permissible
minimum period of payments shall be determined as of
the annuity starting date and reduced by one for each
subsequent year.
``(D) Minimum amount that must be paid in any
event.--For purposes of subparagraph (A), the term
`minimum amount that must be paid in any event' means
an amount payable to the designated beneficiary under
an annuity contract that is in the nature of a refund
and does not exceed the greater of the amount applied
to produce the lifetime annuity payments under the
contract or the amount, if any, available for
withdrawal under the contract on the date of death.''.
(c) Recapture Tax for Lifetime Annuity Payments.--Section 72 of
such Code is amended by redesignating subsection (w) as subsection (x)
and inserting after subsection (v) the following new subsection (w):
``(w) Recapture Tax for Modifications to or Reductions in Lifetime
Annuity Payments.--
``(1) In general.--If any amount received under an annuity
contract is excluded from income by reason of subsection (b)(5)
(relating to lifetime annuity payments), and--
``(A) the series of payments under such contract is
subsequently modified so any future payments are not
lifetime annuity payments,
``(B) after the date of receipt of the first
lifetime annuity payment under the contract an
annuitant receives a lump sum and thereafter is to
receive annuity payments in a reduced amount under the
contract, or
``(C) after the date of receipt of the first
lifetime annuity payment under the contract the dollar
amount of any subsequent annuity payment is reduced and
a lump sum is not paid in connection with the
reduction, unless such reduction is--
``(i) due to an event described in
subsection (c)(5)(A)(iii), or
``(ii) due to the addition of, or increase
in, a minimum period of payments within the
meaning of subsection (c)(5)(C) or a minimum
amount that must be paid in any event (within
the meaning of subsection (c)(5)(D)),
then gross income for the first taxable year in which
such modification or reduction occurs shall be
increased by the recapture amount.
``(2) Recapture amount.--
``(A) In general.--For purposes of this subsection,
the recapture amount shall be the amount, determined
under rules prescribed by the Secretary, equal to the
amount that (but for subsection (b)(5)) would have been
includible in the taxpayer's gross income if the
modification or reduction described in paragraph (1)
had been in effect at all times, plus interest for the
deferral period at the underpayment rate established by
section 6621.
``(B) Deferral period.--For purposes of this
subsection, the term `deferral period' means the period
beginning with the taxable year in which (without
regard to subsection (b)(5)) the payment would have
been includible in gross income and ending with the
taxable year in which the modification described in
paragraph (1) occurs.
``(3) Exceptions to recapture tax.--Paragraph (1) shall not
apply in the case of any modification or reduction that occurs
because an annuitant--
``(A) dies or becomes disabled (within the meaning
of subsection (m)(7)),
``(B) becomes a chronically ill individual within
the meaning of section 7702B(c)(2), or
``(C) encounters hardship.''.
(d) Lifetime Distributions of Life Insurance Death Benefits.--
(1) In general.--Subsection (d) of section 101 of such Code
(relating to life insurance proceeds) is amended by adding at
the end thereof the following new paragraph:
``(4) Exclusion for lifetime annuity payments.--
``(A) In general.--In the case of amounts to which
this subsection applies, gross income shall not include
the lesser of--
``(i) 50 percent of the portion of lifetime
annuity payments otherwise includible in gross
income under this section (determined without
regard to this paragraph), or
``(ii) the amount in effect under section
72(b)(5).
``(B) Rules of section 72(b)(5) to apply.--For
purposes of this paragraph, rules similar to the rules
of section 72(b)(5) and section 72(w) shall apply,
substituting the term `beneficiary of the life
insurance contract' for the term `annuitant' wherever
it appears, and substituting the term `life insurance
contract' for the term `annuity contract' wherever it
appears.''.
(2) Conforming amendment.--Paragraph (1) of subsection (d)
of section 101 of such Code is amended by adding ``or paragraph
(4)'' after ``to the extent not excluded by the preceding
sentence''.
(e) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to amounts received in calendar years beginning after the
date of the enactment of this Act.
(2) Special rule for existing contracts.--In the case of a
contract in force on the date of the enactment of this Act that
does not satisfy the requirements of section 72(c)(5)(A) of the
Internal Revenue Code of 1986 (as added by this section), or
requirements similar to such section 72(c)(5)(A) in the case of
a life insurance contract), any modification to such contract
(including a change in ownership) or to the payments thereunder
that is made to satisfy the requirements of such section (or
similar requirements) shall not result in the recognition of
any gain or loss, any amount being included in gross income, or
any addition to tax that otherwise might result from such
modification, but only if the modification is completed prior
to the date that is 2 years after the date of the enactment of
this Act.
<all>
Introduced in House
Introduced in House
Referred to the House Committee on Ways and Means.
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