Insurance industry blasts tax on annuity income
March 29, 2010 by Darla Mercado
By Darla Mercado
March 26, 2010 10:53 am ET
Members of the life insurance and annuities industries have asked senators to rethink a portion of the health care bill that would hit annuity income with Medicare taxes.
“These annuities are used by millions of Americans to achieve retirement security,” stated the March 24 letter, which was jointly written by the American Council for Life Insurers, the Insured Retirement Institute and the National Association of Insurance and Financial Advisors, among others. “In the wake of the worst economic crisis since the Great Depression, this is not the time to discourage responsible retirement planning.”
The White House originally proposed a 2.9% tax on unearned income — such as interest, dividends, annuities, royalties and rent — for single taxpayers whose income exceeds $200,000, and $250,000 for couples.
However, the Health Care Reform Reconciliation Bill has stepped that levy up to 3.8%. Proceeds from the collected taxes would go toward Medicare.
The letter, which was also signed by the National Association for Fixed Annuities and the National Association of Health Underwriters, found the inclusion of annuities questionable, considering that the White House’s Middle Class Task Force has publicly touted annuities as a way to “transform savings into guaranteed future income.”
“The reconciliation bill’s taxation on individual annuity income will have the undesired effect of discouraging Americans from saving for retirement and guaranteeing a source of income today or at any time in the future,” the letter said.
Advisers indicated that the taxes would certainly weigh into their decision to recommend an annuity for a client. But first and foremost, they’d consider the benefits of the annuity in the first place.
“The lifetime income is still the major issue here, so the taxes are a factor, but I’m not sure it would completely discourage me,” said Joseph B. DeDomenico, a financial adviser with DeDomenico Wealth Management. The firm has $40 million in assets under management.
“Taxes change, and we’re planning for many decades to come,” he added. “You don’t want to let the tax tail wag the dog.”
