Final Senate Finance Bill Text Keeps Narrow LTCI Tax Break Provision

Other Provisions

The new EARN Act bill’s formal text includes many provisions of interest to financial and insurance advisors.

One is an often-introduced, never-passed measure that would help consumers make more use of a special class of deferred immediate annuities — qualifying longevity annuity contracts, or QLACs.

QLACs are deferred income annuities that start paying benefits at age 85 or later, protect the holder against extreme longevity, and qualify for special federal income tax breaks.

A QLAC provision, which starts on page 81 of the EARN Act full-text version file, would make using QLACs more attractive by increasing the current QLAC premium limit to $200,000 — and indexed for inflation — from $135,000 or 25% of the participant’s account balance today.

Some other bill sections could affect insurers’ behind-the-scenes administration of annuities.

The Future

In June, the committee considered and then rejected an amendment proposed by Sen. Pat Toomey, R-Pa. that could have let clients exclude up to $2,500 in retirement plan LTCI premium payments per year from taxable income.

Wyden and Crapo now must work to get the bill through the Senate, as part of the Secure 2.0 package or through another process, and to reconcile any version that gets through the Senate with any version that gets through the House.

The Toomey LTCI proposal could return at some point during that process.

One obstacle is that the United States faces a large budget deficit. Members of Congress are supposed to find ways to offset the cost of any proposed tax break, and “pay for” proposals tend to be less popular than tax break proposals.

Pictured: Sen. Pat Toomey, R-Pa. (Photo: Toomey)