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In July 2014, the US Government approved a new life annuity product designed for current and future retirees who are concerned about outliving their retirement savings. The new product, a Qualified Longevity Annuity Contract or "QLAC," may be purchased using qualified retirement account assets (e.g. IRA funds) without triggering a taxable event. A QLAC purchase also reduces the Required Minimum Distributions after the IRA owner reaches age 72. Click here to see our Blog Article on the 8 Signs You Need a QLAC or click the button below to open a video.
IRAs and similar retirement savings plans are subject to Required Minimum Distribution or “RMD” tax rules. Under IRS rules, assets held by an IRA owner compound tax-deferred. In retirement, distributions from retirement savings plans (such as IRAs) are treated as taxable, ordinary income. RMD rules force older taxpayers (over the age of 72) to receive distributions and pay tax on past contributions and earnings in their qualified retirement accounts. If an RMD is not distributed after age 70 and 1/2 (72 starting in 2020), a 50% penalty is imposed on the distribution shortfall. Click here to estimate RMDs. Good news -- a QLAC purchase can substantially reduce the required RMD distribution amount and the corresponding tax obligation - without creating a penalty for the taxpayer. See our videos page for several examples.
A QLAC provides a lifetime annuity once distributions start. Between the purchase date and the time payments begin (no later than age 85), no taxation is triggered. While all distributions are taxed as ordinary income, this taxation only occurs when the QLAC owner or beneficiary receives annuity payments. In this way, a QLAC performs like any deferred annuity – growth in the value of the contract is only taxed once received by the annuity's beneficiary. See our 1-2-3 RMD Calculator Page. It allows you to compute what deferrals would be for you (or click the button below.)
Qualified Longevity Annuity Contract “QLAC” owners may wait up until age 85 to start payments from a QLAC annuity. Also, a QLAC can be purchased before retirement. The more time between the purchase date and the annuity start date, the larger the annuity payment from the QLAC. Also, the QLAC is not considered in computing the Required Minimum Distributions after age 72. As a result, early in retirement (when income may not be needed) taxable income is deferred to later on in the retirement when the QLAC payments occur. Click here to learn about our Failsafe(SM) Strategy for maximizing income during retirement. To learn how much income a QLAC will generate click the button below and receive a comparative quote from Immediateannuities.com.
The Qualified Longevity Annuity Contract or "QLAC" premium purchase is limited to 25% of a retirement plan (i.e. assets held in tax-qualified accounts such as an IRA), but (as of 2020) no more than $135,000 from all plans. However, QLAC contribution limits follow the individual. So, for example, if a husband and wife each have an IRA, with a balance of $540,000, both individuals may purchase their own separate QLAC, each with a premium of $135,000. For the example couple, then, the maximum combined QLAC purchases equal $270,000. See our video about a couple examining a QLAC purchase to see how this works.
In the past, retirees were advised to limit withdrawals to no more than 4% of their savings each year. So doing, they would not outlive their assets. Today, two things have changed. First, people are living much longer. Second, equity investment returns are volatile, and fixed income yields are at record lows. As a result, even the 4% faithful are at risk of dissipating their savings and becoming dependent on just social security. A Qualified Longevity Annuity Contract is a private-sector solution that offers an additional source of guaranteed income to a senior – and one that cannot be outlived. Click to learn about our Failsafe(SM) Strategy for maximizing income during retirement. To learn how much income a QLAC will generate, click the button below, and receive a comparative quote from Immediateannuities.com.
An immediate or deferred annuity runs into several obstacles when funded by an IRA. As a special creature of the tax regulations, a QLAC overcomes these hurdles. 1) QLAC premiums can be paid with IRA assets without triggering withdrawal taxation. 2) Because the QLAC is not an IRA asset, the IRA’s RMD is reduced. As a result, the QLAC maximizes a retiree’s ability to shift income and taxes to later retirement years. Traditional annuity choices cannot achieve these dual objectives. To see a video comparing a QLAC with IRA only and Immediate Annuity options, click here.
The IRS requires that Qualified Longevity Annuity Contract “QLAC” payments be for the life of the owner of the contract (or the owner and his/her spouse.) The QLAC owner elects when the payments begin, but not later than his or her 85th birthdate. Once started, QLAC annuity payments continue until the annuitant(s) death, no matter how long the annuitant (or annuitants) live. Click here to see our blog piece comparing QLACs to Social Security.
Qualified Longevity Annuity Contracts “QLACs” work great, whether you live to 100 or not! Payments have no time limit. Distributions cease only when the owner (or owner and spouse) die(s.) What is the downside? If a QLAC owner (or owner and spouse) dies before full recovery of the premium paid, a policy election allows the unrecovered amount to be paid to a beneficiary. Accordingly, a QLAC might distribute a simple return of premium at premature death(s), or where long lives are involved, annuity payments that total many multiples of the QLAC premiums paid. To see the difference between QLAC plans' benefits both with and without return of premium policies, click here.
And Other Retirement Benefits
And How Do QLACs Defer Taxes
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The foregoing videos and their examples do not portray any one person’s situation. The company prepared the Dramatizations to introduce viewers to a new financial product, a Qualified Longevity Annuity Contract. The individual circumstances of a viewer are likely to vary from the examples in the videos. The videos are not tax or legal advice. The financial information and calculations depicted in these videos are supplied from sources we believe to be reliable. However, we are unable to guarantee their accuracy. These materials are not intended to replace the viewer’s legal, tax, and accounting advisors. Any viewer should seek advice from his or her qualified advisors before entering into a QLAC purchase. The Company accepts no responsibility for any outcome arising from a QLAC purchase or a failure to make a QLAC purchase. This material is not intended to be used, nor can it be used by any taxpayer to avoid U.S. federal, state, or local tax penalties.