What Is A QLAC and Could You Benefit From One?

What Is A QLAC and Could You Benefit From One? 
Secure retirement income later in life with a qualified longevity annuity contract.

We all have dreams for retirement. It’s the part of our lives we spend decades working toward. Whether you’ve got specific plans yet or not, what remains a necessity is enough money to last from the day you retire throughout the rest of your life, however long that may be. The security of knowing the money you’ve worked so hard to save will last as a lifetime is priceless.

According to a 2015 Employee Benefit Research Institute survey, 60% of Americans are not entirely confident they will have enough money to maintain a comfortable standard of living through retirement. While there are countless products and investments to choose from to help reach your goals, one uncommon option could be a huge benefit to your retirement plan. A qualified longevity annuity contract, or often referred to as a QLAC, could give you lifetime income with the option to delay receiving payments until as late as age 85, therefore allowing you the ability to postpone a portion of your required minimum distributions (RMDs).

Other benefits of a QLAC include the opportunity to leave more assets to a surviving spouse. Or, it may help you save for medical expenses later in life. Also, since the QLAC is a longevity annuity structure, it is not tied to the stock market, so it won’t have the fluctuation of some IRA investments. This product may be used as part of an overall strategy to complement the rest of your financial portfolio.

The QLAC was actually named after an IRS ruling regarding longevity annuities and allows the use of $125,000 or 25% of your individual retirement account (IRA), whichever is less, to fund it. Also, this ruling says when qualified assets are used to fund an annuity, that amount can be excluded from an RMD calculation. So for example, if you have an IRA with $500,000 in it, then fund a $125,000 QLAC, your RMD calculation would be based on $375,000. The QLAC works a bit like your Social Security payment, providing an income stream for life starting at a certain date.

How do you know if a QLAC is a good fit for you? Some questions you may want to ask yourself if you’re nearing age 701/2 are:

  • Do you have enough resources outside of your IRA?
  • Are you interested in decreasing your taxable income?
  • Can you comfortably cover your expenses without your RMD?
  • Do you want guaranteed income for life?

When you are of age to receive annuity payments, they will be fully taxable and possibly much higher, or may even bump you into a higher tax bracket. You must start taking income from the QLAC no later than the first day of the month after the month you turn 85. It is always best to consult your financial advisor before you make the long-term decision to include a QLAC as part of your financial plan.

Would you like to discuss if a QLAC makes sense for you? Click on the button below to request your free 15-minute phone consultation with a Bayntree financial advisor.

Bayntree Wealth Advisors, located in Phoenix and Scottsdale, Arizona, provides comprehensive financial planning and wealth management. The Bayntree team specializes in all aspects of financial health, including retirement planning, risk management, investment advice, tax strategies, estate planning and insurance.

Bayntree does not provide specific legal or tax advice. Please consult with your tax advisor or legal professional for guidance with your individual situation. 

Insurance Products guarantees are subject to the financial strength and claims-paying ability of the issuing company, and may be subject to restrictions, limitations or early withdrawal fees. Annuities are not FDIC insured.

 

 

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