What is a QLAC (Qualifying Longevity Annuity Contract)? A QLAC is a type of fixed income

annuity that has special attributes and is held in a retirement account.

1. RMD (required minimum distribution) exclusion. The fair market value of your QLAC is

excluded from your RMD calcuations. What’s the benefit? You can keep a greater portion of

your IRA (or other retirement account) intact longer while enhancing the income stream the

annuity will provide in the future.                                                                         

2. The distribution deadline. You don’t have to start taking distributions from your QLACs

at age 72, but you can’t delay them indefinitely. QLAC distributions must begin no later than

the first day of the month after you turn age 85.

3. Your investment threshold. You will be limited as to how much of your retirement

savings you can invest in a QLAC. The limit will be the lesser of $145,000 or 25% of your

applicable retirement account assets. The 25% limit applies on a per account basis except

for IRAs, BUT the $145,000 is a cumulative limit for all QLACs in all retirement accounts.

For IRAs, the 25% limit will apply to the prior year-end total of all IRAs (not including Roth

IRAs).

4. Facts to keep in mind. QLACs cannot be variable or equity-indexed annuity contracts,

though insurance companies may offer contracts with cost-of-living adjustments. QLACs

cannot offer any cash surrender value. So if you buy one, just be sure you won’t be needing

that lump-sum of money anytime soon!

5. The death benefit. QLACs can offer two death benefit options: a life annuity (the rules can

vary depending on a number of factors) and a return-of-premium option. These, of course,

are the potential death benefit options allowed by the tax code, but that doesn’t mean that

every QLAC contract will offer all of these options.

Frank Oliver is a member of Ed Slott’s Master Elite IRA Advisor Group and is dedicated to helping diligent savers enter the second half of retirement with a plan to help avoid tax and distribution planning risks that can wipe away the sacrifice and hard-earned money made during their working years.

Frank attends regular trainings and conferences to stay up to date on the changing tax laws and evolving strategies to best help Colorado retirees avoid potential tax hikes and help reduce their tax bills in retirement.

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