You should never feel rushed or pressured by an over- zealous agent to buy more annuity than you need. Thankfully the government has provided some assistance with the creation of Qualified Longevity Annuity Contracts (QLACs) which are transparent and simple to understand.
What is a QLAC?
In July of 2014, the IRS and the Treasury Department approved the use of Qualified Longevity Annuity Contracts (QLACs) within a Traditional IRA. QLACs are unique because they allow you to set up an income stream within your IRA, with the payments that can start as late as age 85.
The premium limitation for a QLAC is the lesser of $125,000 or 25% of your total IRA assets. QLACs allow you to set up a joint payout with your spouse, and guarantee that 100% of the principal goes to your family if you pass away early in the contract. This is good from a grandparent’s legacy standpoint for your heirs.
Guaranteed Income for Life
QLACs allow you to defer as short as age 72 to as far out as age 85 to start the income stream. You can structure the contractually guaranteed payout for you and your spouse, and a COLA (Cost of Living Adjustment) annual increase can be added at the time of application.
Lower your RMD taxes
The QLAC dollar amount is not included when you calculate the taxes on your RMDs (Required Minimum Distributions) when you turn 70 ½. For example, a $500,000 Traditional IRA would allow the purchase of a $125,000 QLAC. Instead of paying taxes on $500,000, you will calculate your RMD taxes on $375,000.
Simple, Transparent, No Fees
QLACs are very simple in design, and are a pure transfer of risk pension product for future income needs. Qualified Longevity Annuity Contracts have no annual fees, no market attachments, and no moving parts. Even though all annuity and life insurance commissions are built into the product, QLAC commissions to the agent are very low.
Is a QLAC right for you?
Below are the reasons to consider a QLAC for your specific situation:
- If you don’t need to take RMDs, and would like to legally lower the taxes on your Required Minimum Distributions when you turn 70 ½
- If you would like to set up a future lifetime income stream for you (and joint with your spouse if applicable) using your Traditional IRA funds
- To combat future inflation by have the QLAC income start at a future date or by using a COLA increase to the annual payment
Free QLAC Owner’s Manual – click on cover to download
I have written an easy to read QLAC Owner’s Manual that is available for free to all GRAND Magazine readers. It covers all of the questions, details, benefits, and limitations of the QLAC product. Simply email me your physical mailing address to firstname.lastname@example.org, and I will mail you signed hard copy of the book.
Stan The Annuity Man is one of the country’s leading Independent Annuity Agents. He is nationally recognized as an annuity critic and expert, and has been called one of the most outspoken consumer advocates for annuities. Stan is the most read and most controversial annuity commentator in the country, and his book The Annuity Stanifesto has quickly become the go-to-resource for all things annuity. For more information go to: www.stantheannuityman.com
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