Ben Stein, author, comedian and actor, last week testified before the Senate in his capacity as honorary chairman of the National Retirement Planning Coalition on the value of annuities.
Joining the AARP, insurance companies and financial planners in calling for additional tax advantages for the investment products, Stein pointed out that while annuities compound tax free, withdrawals are taxed as ordinary income, rather than at the lower level of dividends or capital gains.
"Fairer tax treatment of annuities could encourage an extremely responsible form of retirement planning--annuitization--and the more people who take that path, the better off we will be as a society," Stein told the Senate Special Committee on Aging. The committee is considering legislation that Sens. Gordon Smith (R-Ore.) and Kent Conrad (D-N.D.) have proposed that would make half of a retiree's annual annuity income tax free up to a limit of $20,000. For those in the 25% tax bracket, this would be annual savings of $5,000, Stein said.
The AARP also asked the Senate to consider automatic 401(k) plans and extend savers' credit for low-income workers.