A Qualified Longevity Annuity Contract (QLAC) delays Required Minimum Distributions (RMDs) and guarantees future income, so you never have to worry about outliving your savings.
No retiree should have to pay unnecessary taxes or fear running out of money in their later years. A Qualified Longevity Annuity Contract (QLAC) lets you set aside part of your IRA or 401(k) to fund a guaranteed income stream that starts at a future date, reducing your taxable RMDs in the meantime.
Traditional retirement accounts (like IRAs and 401(k)s) require you to take withdrawals starting at age 73. These distributions are taxable and can significantly increase your annual income tax bill.
With people living longer than ever, there is an increasing risk of outliving your savings, leaving you without a reliable source of funds in your 80s and beyond.
The primary benefits of a QLAC include:
By funding a QLAC, that portion of your assets is excluded from RMD calculations until the income payments begin, potentially lowering your tax bill during your 70s and early 80s.
A QLAC provides predictable, scheduled payments for the rest of your life, starting at an advanced age you choose (e.g., age 80 or 85).
It acts as "longevity insurance," ensuring you have a steady stream of income no matter how long you live.
The funds within the QLAC grow tax-deferred until your income payments begin.
You can move up to 25% of your qualified account balance or $200,000 (whichever is less) from your IRA or 401(k) into a Qualified Longevity Annuity Contract.
The amount transferred into the QLAC is excluded from your RMD calculations. This lowers your required withdrawal amount from your remaining IRA funds, thereby reducing your taxable income.
At your chosen future start date (up to age 85), you begin receiving predictable, guaranteed monthly payments that will last for the rest of your life.
Without using a strategy like a QLAC, your full RMDs will be taxable, potentially pushing you into a higher tax bracket and reducing your net retirement income.
If you withdraw too much money too soon or experience a market downturn, you run a greater risk of outliving your savings.
Market-based investments provide growth potential but offer no guarantee of consistent income, especially in your later years when you need it most.
By choosing a QLAC, you gain:
Still have questions? Here are the answers to the most common questions we receive:
As of 2024, you can allocate up to $200,000 from your IRA or 401(k) into a QLAC, subject to IRS limits.
QLACs are designed to provide future income, so early withdrawals are generally not allowed. However, some contracts offer return-of-premium features.
QLAC payments are taxed as ordinary income when withdrawn, just like other retirement distributions.
Many QLACs offer death benefit options that allow your heirs to receive a refund of unused funds or continued payments.
Simply put, longevity risk is the chance you’ll run out of money during retirement. Thanks to advancements in medicine and technology, you might live longer in retirement than you expected when you began saving. Living longer is a great thing, but it also means there’s a possibility that you could lose the ability to support yourself even after working your whole life.
IRAs, 401(k)s, and other retirement plans offered through employers play a crucial role in accumulating wealth while enjoying tax advantages. However, when planning for your golden years, there’s one critical element to consider: Required Minimum Distributions (RMDs). Learn more here.
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