QLAC – Qualified Longevity Annuity Contract
A QLAC is a deferred income annuity specifically for qualified funds. A portion of qualified money goes into the QLAC not only lowering your RMD’s but also your tax burden. It allows you to put money aside to create a stream of income in the future. It’s a great option for those who do not need the income in early retirement and are concerned about out living their money.
Here’s how a QLAC works:
- The funds from the IRA are transferred into the QLAC
- The lesser of 25% or $135K may be deferred. Because the money is put into a QLAC is not included in your RMD calculation, it can lower your immediate tax burden.
- The client determines a future date to start receiving payments. Payments can be deferred to age 85.
- Payments options: Life only and Life with Cash Refund
Are there limitations on a QLAC?
There are some limitations. Once the QLAC is set up it cannot be undone and there is no interest of the deferred funds.
Let’s look at an example:
- Jane Doe is 70 and deposits $100k in a QLAC.
- At age 80 she starts taking monthly payments, $856 or $10,272 annually.
- If she lives to 95 she would have received $164,363.
- It’s a good way to solve the retirement income puzzle since the longer you live the more likely you are to have an income shortfall.