The next several years will see a flood tide of a new kind of retiree — the rollover retiree. Millions of baby boomers will be transitioning into retirement without the comfort of the old-fashioned monthly pension check, but rather with a lump sum rollover check from their employment 401(k) or 403(b) retirement account. Ready or not, each rollover retiree will start a new career as an investor. Most will not be ready.

For the fortunate few who have been able to accumulate large retirement accounts, the transition to retiree investor is eased by the legions of financial planners, investment advisers, money managers, etc. who are ready — for a fee — to advise and shepherd these rollover retirees into the world of investing. But what about the less fortunate many, whose retirement accounts are modest (or less than modest) as a result of smaller or fewer contributions during their working years, poor investment choices or just plain bad luck?

Many will do the safe thing and roll their modest retirement accounts into an Individual Retirement Account with their local savings bank. But after a few months of watching their nest egg grow at a microscopic two-tenths of 1 percent per annum, and with little prospect for a better return in the future, they may decide to invest in riskier investments with better returns. Frustration with their financial prospects, coupled with a lack of investment experience and knowledge, will lead many people away from using their rollover accounts for their well-intended purpose: providing a steady stream of income during the retirement years.

Here is where the state of Maryland can help. With enabling legislation, the state can establish a program to issue immediate annuities of up to $100,000 to Maryland taxpayers who are rolling over qualified retirement funds. All Maryland taxpayers, including those with rollover accounts exceeding $100,000, will be eligible for this program, but only a maximum of $100,000 per taxpayer will be permitted. The state would have the benefit of a new and considerable stream of cash for which it would pay market rate interest (tied to an established index).

The immediate annuity provides a regular, periodic payment of the invested amount, plus earned interest. For example, a retiree could roll over $100,000 of his or her qualified retirement account to the state under a 10-year, immediate annuity and receive $833 (plus accrued interest) immediately and continuing each month for 10 years.

Maryland has both a societal and pecuniary interest in keeping its citizens' rollover retirement accounts alive and well. The ability to receive a regular monthly payment from this annuity account alone, or as a supplement to Social Security, should help enable retirees to maintain a household and financial independence as well as improving their creditworthiness in retirement. For low-income retirees, a dependable monthly annuity income could make a considerable difference. This, in turn, benefits both the retiree and ultimately the state and local governments.

Maryland has a direct financial interest in collecting income tax from retirees who have drawn money from their rollover accounts. Money accumulated in qualified retirement plans is not subject to federal or state income tax at the time it was earned, but is subject to income tax at the time it is withdrawn. Thus, each time a retiree takes rollover money from his or her IRA for personal use in retirement, he or she must report such money as income and pay state and federal income tax.

If, as part of the immediate annuity program, the participating retiree agrees to permit the state of Maryland to withhold the estimated state tax on each monthly payment, the state could realize an immediate stream of tax revenue that would substantially offset or even exceed the annual market rate interest paid for the same annuity account balance. Withholding taxes on a pay-as-you-go basis should make the tax bite more predictable for the retiree and at the same time assure the state of the collectability of its tax revenue.

While the proposed immediate annuity program has a specific benefit for those with modest rollover accounts, those with larger accounts should also find the program attractive, even if limited to a $100,000 maximum investment. Since this Maryland program will be designed without the need for the State to make a profit and with limited overhead costs, it can be structured to provide even better interest rates and terms than comparable, for-profit annuity investments.

Richard J. Magid is a partner in a downtown Baltimore law firm. His email is rmagid@wtplaw.com.