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White House delays annuity tax change


CHICAGO -- The Bush administration backed down Friday night and said it would delay a proposal to eliminate the tax benefits enjoyed by the hundreds of thousands of customers who each year buy annuities.

As proposed, the bill would have been effective Saturday, raising the likelihood that annuity sales would dry up immediately. But the Treasury said late Friday that it would revise the proposal to make it effective only after it was approved by Congress.

That decision is likely to lead to a surge in sales, as buyers rush to get tax advantages that could soon be lost.

Some two-thirds of the life insurers' business is now devoted to annuities. Those sales would likely fall off sharply if the president's proposal ending the tax-deferred status of annuity earnings became law.

Although annuities have long been sold as a form of insurance against living too long -- beyond one's ability to pay for retirement -- in recent years annuities have become a popular vehicle for accumulating savings tax-free.

Some people use annuity proceeds to supplement retirement income late in life, paying for everyday expenses, but others have viewed annuities as akin to bank certificates of deposit on which they can earn interest tax-free.

NB It is the latter use that the government is trying to curtail.

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