QLAC--Part of My Plan?

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QLAC--Part of My Plan?

Recently, the IRS made a change to the rule book, and decided to allow QLACs to be a part of your IRAs. So what is a QLAC and what does it mean for you?

 

Defining the QLAC

 

A Qualifying Longevity Annuity Contract is a type of annuity that allows you to defer payouts until a specified age in the future.

 

With a QLAC you pay a premium, and then at the age you specify, the annuity begins to payout a certain amount every month for the rest of your life. Guaranteed.

 

Under the new rules, the IRS will allow you to contribute up to $125,000 from  your IRA, or 25% of your IRA’s value, whichever is less, to a QLAC.

 

How Could a QLAC Fit In My Portfolio?

 

The new rules make the QLAC a potentially advantageous vehicle.

 

First off, a QLAC has tax advantages. The money you contribute to the QLAC is excluded from the amount used to calculate your RMDs, which may reduce your taxes.

Secondly, your RMD’s would be lower. If you had $600,000 in your IRA, your RMD’s would be calculated at $475,000 instead.

 

Lastly, people are living longer. Life expectancy is increasing, and with medical innovation, this trend will probably continue. Retirement is becoming a longer prospect, leaving you in danger of outliving your money if you don’t have a solid and properly allocated retirement plan. A QLAC may be able to provide a bit of certainty. The income generated from it will be guaranteed for life, no matter how long you live. In your later years, it could help to have the extra security blanket. Deferring income may help you to be sure you have income in the future for unforeseen costs such as medical expenses.

So Should I Get a QLAC?

This is simply another tool we can use to build the portfolio which matches your financial needs to support the retirement lifestyle you want. A QLAC does have tax advantages and could provide a sense of security in your later years. Ultimately, a QLAC is something to consider and discuss with your financial advisor and see if it truly is a good fit for your financial plan.

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