In 2014, our “friends” at the IRS and the Treasury Department introduced the newest product to the annuity category, the Qualified Longevity Annuity Contract (QLAC)

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Update: As of January 1, 2023 the QLAC limit increased to $200,000 per individual.

 

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QLACs are, in essence, Deferred Income Annuities (DIAs). A Deferred Income Annuity (DIA) is the cousin of a Single Premium Immediate Annuity (SPIA). The only difference between these annuity types is that QLACs can only be used in qualified retirement plans like your Traditional IRA.

 

QLACs, DIAs, and SPIAs are all in the same lifetime income family. All have no moving parts, no annual fees, and are a simple and easy to understand the transfer of risk strategy that contractually guarantees a lifetime income stream. They all solve for “longevity risk,” which is the fear of outliving your money. By the way, annuities are the only product type that contractually provides lifetime income.

 

A QLAC is a type of fixed annuity that is issued by life insurance companies and provides a guaranteed monthly lifetime income stream regardless of how long you live.

 

Below are some key benefits that QLACs provide.

 

*You can use Traditional IRA $$ to fund a QLAC

*Your spouse or partner can be set up for “Joint Life” payments

*QLAC $$ are not used to calculate your Required Minimum Distributions (RMDs)

*QLAC income can start as soon as age 73 (formerly age 72)

*QLAC income can start as late as age 85

*You can structure your QLAC so that any unused $$ goes in full to your listed beneficiaries

*You can ladder QLACs to start at different ages in the future

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Qualified Longevity Annuity Contracts (QLACs) have a limitation on how much money you can place in the policy. For 2022, it was the lesser of 25% of the total account balances for your qualified (IRA type) money...or $145,000. If both you and your spouse/partner have IRA type accounts, then each of you can own a QLAC. However, beginning in 2023 with the passage of the Secure Act 2.0, the amount per individual has been raised too $200,000, indexed for inflation. 

 

Social Security (the annuity that everyone owns) was never intended to be the primary source of retirement income, even though too many people use it that way. With trillions of dollars in Traditional IRAs, the government is hoping that people start implementing QLACs as part of their guaranteed income floor.

 

One of the biggest benefit propositions QLACs offer (in my opinion) is the ability to add your spouse/partner for “Joint Life” income guarantees, even though you are using your personal IRA assets. This is a guaranteed lifetime income legacy that should be taken advantage of by most Traditional IRA owners, particularly to take care of a wife for life, should the husband pre-decease her. (Which is certainly likely)

 

In my opinion, QLACs should be a part of every retirement income plan and retirement account strategy because of the guaranteed income it contractually provides. That lifetime income stream is primarily based on your life expectancy(s) at the time you start the income, with interest rates playing a secondary pricing role.

 

With the new Required Minimum Distribution (RMD rules) 2023 guidelines, you now have to start taking money out of your IRA at age 73...instead of the previous age rule of 72, which will be raised to 75 beginning in 2033. So with your Qualified Longevity Annuity Contract (QLAC) strategy, you can have income starting as soon as age 73 and as late as age 85.

 

You can start the income at any time between those ages, and can also split up your QLAC purchase to have multiple policies to ladder income at different intervals. At age 85, the IRS will be “tapping you on the shoulder) to make you turn on that QLAC income stream.

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To receive a current quote on a QLAC and how it could benefit you personally, please complete the information on the form and click submit.

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