Is A Qualified Longevity Annuity Contract (QLAC) A Good Idea?

The short answer is Yes. A qualified longevity annuity contract is a new type of deferred annuity and is a fantastic idea!

The idea is to invest a lump sum of cash ($200,000 from a qualified retirement plan in 2023) into the QLAC. Then, starting at age 85 or younger, you can lower your RMD calculations and receive additional tax-deferred income is fantastic.

If you have 3,000,000 in a 401K, you can transfer $200,000 to a traditional IRA, which allows you to move these funds to a QLAC and reduce your RMD calculations to $2,800,000. At 85, your RMDs will be re-assessed based on the current values of your 401K and the value of the QLAC.

Assuming these values now equal $800,000 combined based on how much was withdrawn over the past 13 years, your RMDs will be recalculated at potentially a lower tax bracket.

Let’s take a closer look at why you should consider buying an annuity such as a QLAC.

What Is A Qualified Longevity Annuity Contract (QLAC)?

A Qualified Longevity Annuity Contract (QLAC) is a type of annuity that allows individuals to delay receiving annuity payments until age 85. By purchasing QLAC annuities, retirees can ensure a guaranteed lifetime income stream while potentially reducing required minimum distributions and securing their financial future.

QLACs are subject to certain limits and regulations set by the Internal Revenue Service (IRS).

Here are the benefits of a QLAC:

• A QLAC provides a guaranteed stream of income for life once the annuitant reaches a certain age, providing financial security.
• QLAC is a retirement strategy that allows retirees to defer required minimum distributions (RMDs) from their qualified retirement accounts (up to $200,000) until age 85, reducing taxable income during their early retirement years.
• QLACs offer protection against longevity risk, ensuring individuals do not outlive their retirement savings.
• QLACs have a higher contribution limit, allowing individuals to secure a larger retirement income.
• QLACs provide a death benefit, ensuring unused funds are passed onto beneficiaries.

Why QLACs Are Your Best Annuity Option To Defer Tax Income To 85

QLACs are your best bet for deferring tax income till 85. They are more than just a tool for tax diversification; they ensure you don’t outlive your retirement assets.

A QLAC purchase offers the following retirement benefits:

• QLAC is a deferred tax-qualified account
• Offers flexibility on when to begin income
• They reduce RMDs
• They provide a return-of-premium death benefit

If your looking for qualified longevity annuity contract information, look no further than Integrity Now Insurance Brokers and our experienced deferred fixed annuity experts.

 

Does Another Investment Option Besides A QLAC Allow For Deferred Taxes To 85?

No. A QLAC is the only annuity product allowing for an additional delay of taxable income to age 85.

When you purchase a deferred annuity that is not a qualified longevity annuity contract, those annuity payouts follow the standard IRS rules and regulations.

Who Should Consider A QLAC?

You should consider a Qualified Longevity Annuity Contract (QLAC) offered by life insurance companies if you’re nearing retirement and concerned about outliving your savings or looking to diversify your assets.

A QLAC fits like a glove if you:

• Are close to the Required Minimum Distribution (RMD) age
• Have retirement income that will last for years and don’t need all RMDs for current income
• Desire to reduce your taxable income
• Provide an income boost at age 85 and beyond
• Seek guaranteed life annuity income
• Allows for joint life QLAC benefit options

Pros and Cons Of Buying A QLAC

1. A QLAC offers a steady stream of income for life.

A QLAC is a contract that guarantees a steady income stream for the rest of your life. Here’s why you might consider it:

Pros:

• It provides a guaranteed income for life. You’ll have peace of mind knowing you won’t lose your income.
• It supplements other retirement income sources like Social Security or pension payments.
• It offers tax benefits. QLACs are exempt from required minimum distribution rules. The distributions can be delayed until a set age, which can also reduce the required distributions from other retirement accounts.

However, QLACs may not be for everyone. Consider the following:

Cons:

• It requires a chunk of your savings upfront, which takes away from potential wealth accumulation.
• The return on investment is lower than other, riskier options.
• The money you put into a QLAC is locked in. This might limit your financial flexibility in the future.

Make sure to weigh these considerations before investing.

2. A QLAC is more tax efficient than a traditional IRA or 401(k).

Thinking about retirement? A QLAC (Qualified Longevity Annuity Contract) can prove to be a more tax-efficient choice than a traditional IRA or 401(k). This is why:

• A QLAC reduces your tax burden by protecting a portion of retirement account money from RMD calculations.
• Allows you to purchase the annuity with pre-tax retirement savings, retaining your tax advantages.
• Delays taxes otherwise required by RMDs.
• It comes with the benefit of reducing RMDs, aiding in keeping you in a lower tax bracket.
• Provides a steady, deferred income in retirement.

Benefits:

1. Tax Benefit – A QLAC defers taxes otherwise required by RMDs, potentially keeping you in a lower tax bracket.
2. Retains Tax Advantages – Once you purchase a QLAC with pre-tax retirement savings, you can maintain your tax benefits.
3. Provides Reliable Income – It ensures you a steady, deferred income in your retirement years.
4. Reduces RMDs – Limits your RMDs, potentially reducing your income tax liabilities.
5. Creates a Safety Net – Ideal for those with a risk-averse investment profile & those concerned about outliving their funds.

Drawbacks:

1. Tax Liabilities May Increase – Once QLAC income begins, your tax liability will rise based on your marginal ordinary income tax.
2. Immovable Funds – QLAC funds are less flexible; once shifted from an IRA or 401(k), they cannot be moved.
3. Limited Investment – The SECURE 2.0 Act 2022 only allows you to move $200,000 from your retirement plan or IRA to a QLAC.
4. Buy-In Age – QLACs typically require purchase post-age 55, making it less feasible for early retirees.
5. Requirement for Good Health – QLACs are best suited for individuals with a good health prognosis and a longer life expectancy.

3. QLACs can be used to diversify a retirement portfolio.

A Qualified Longevity Annuity Contract (QLAC) secures a lifetime income stream while minimizing market risk and tax obligations. Here are key ways QLACs can diversify your retirement:

• QLACs provide guaranteed income, eliminating financial market uncertainty.
• They help you manage taxes by deferring required minimum distributions.
• Investing in a QLAC protects you against longevity and long-term care costs.
• You also gain a predictable, volatile-free income approach, ideal for risk-averse.

Remember that QLACs are best suited for individuals with a longer life expectancy and sufficient near-term income. Be conscious of the opportunity cost before making a QLAC investment.

4. A QLAC provides an inflation-adjusted income stream.

• A Qualified Longevity Annuity Contract (QLAC) does not offer inherent inflation protection. However, some payment options include a Cost of Living Adjustment (COLA) to help keep pace with inflation.
• It’s crucial to consider future income requirements and purchase a QLAC that covers your inflation-adjusted needs.
• For instance, say you’re 65 and buy a QLAC with a part of your retirement savings. Setting the income start date to 80, ensures a steady, guaranteed life-long income, potentially with COLA for inflation adjustments.

5. A QLAC can protect against longevity risk.

A Qualified Longevity Annuity Contract (QLAC) protects against longevity risk, addressing your concern about outliving your retirement savings. Here’s how:

• It assures long-term income security. If you’re fretful about your nest egg not lasting, a QLAC provides guaranteed income later in retirement.
• It offers Required Minimum Distributions (RMDs) deferral. You can delay distributions of a portion of your savings till the age of 85.
• Your retirement money is safe from market volatility as future payments are locked in.
• Lastly, if chosen as a joint annuity, the QLAC continues paying income as long as you or your spouse are alive.

For instance, Emily used a QLAC to ensure a steady income in her later years, easing her worries of depleting her retirement savings early.

 

MYGA is appropriate for someone seeking an annuity with a guaranteed fixed interest rate, not subject to stock market corrections. A guaranteed fixed annuity may be an excellent choice for individuals looking for a safe, predictable investment.

Follow these steps to purchase an annuity that offers guaranteed rates of return:

1. Contact an independent insurance agent specializing in fixed annuities
2. Understand how MYGA works
3. Determine the investment amount
4. Choose your issuing company
5. Decide your plan post the term

Expert tips: Consult an annuity expert at Integrity Now Insurance Brokers to help you with this critical decision. Researching the different MYGA options is crucial before making a purchase.

Before you buy an annuity, consider different types of annuities, such as a fixed index annuity, as there may be additional benefits you could be missing out on.

 

Other Types Of Fixed Annuities

Traditional Fixed Annuity

A traditional fixed annuity is a retirement investment where an individual makes a lump sum payment or regular contributions to an insurance company in exchange for a guaranteed income stream in the future.

The annuity earns a fixed interest rate, which is predetermined at the time of purchase and remains unchanged throughout the annuity’s life. This annuity provides stability and security as the principal investment is protected from market volatility.

Additionally, the fixed income generated from a traditional fixed annuity can offer a guaranteed source of income during retirement.

Fixed Index Annuity

A fixed index annuity (FIA) offers the potential for growth based on the performance of an underlying index, such as the S&P 500. Unlike variable annuities, FIAs provide a guaranteed minimum interest rate, protecting the principal from market downturns.

This means that even if the index performs poorly, the annuity holder will not lose money. FIAs offer a way to participate in market gains while still having a measure of protection.

They are popular among those seeking to secure a steady income for retirement without the risk associated with stocks or mutual funds.

Here are some of the key benefits of fixed-indexed annuities:

1. Protects your principal
2. Provides lifetime guaranteed income
3. Provides long-term care health benefits
4. Tax deferred annuity contract
5. Fixed annuities can provide a death benefit
6. Security for those concerned about the longevity of their retirement income

Table Header	Multi-Year Guaranteed Annuities	Fixed Indexed Annuities
Returns	Fixed	Indexed to market
Risk	None	None
Growth	Tax-deferred	Tax-deferred
Protection	Full Protection	Full Protection
Complexity	Low	Medium

Multi-Year Guaranteed Annuity (MYGA)

A Multi-Year Guaranteed Annuity (MYGA) is another nest egg you can consider. Unlike a Qualified Longevity Annuity Contract (QLAC), it lets you lock in an interest rate for a set period while deferring tax. It’s a switch-up from the QLAC scheme with its own highlights:

• Fixed interest rates
• Deferred tax advantages
• Maturity freedom

Now, let’s walk through some pros and cons:

1. Pro: A stable income stream
2. Pro: Tax benefits on earnings till withdrawal
3. Pro: Customizable terms
4. Con: Liquidity restrictions
5. Con: Might have surrender charges

MYGA annuity payments begin at the end of the contract term. Review the type of annuity contract with our annuity advisors before you buy the QLAC or MYGA of your choice.

Single Premium Immediate Annuity (SPIA)

Considering a safe bet for your retirement fund? Single Premium Immediate Annuity (SPIA) could be a viable alternative to a Qualified Longevity Annuity Contract (QLAC).

A Single Premium Immediate Annuity (SPIA) is a type of annuity purchased with a single lump sum payment. Upon buying an SPIA, the individual begins to receive immediate, regular income payments from the annuity provider.

The payment amount is determined by factors such as the individual’s age, gender, and the size of the lump sum investment. SPIAs are often chosen by retirees who can use their savings to secure a steady income stream throughout their retirement years.

The top features of an SPIA include the following:

• Provides a guaranteed income stream for life or a specified period.
• Offers options like single-life, joint-life, and period-certain annuities.
• Allows the inclusion of a cash refund option for beneficiaries.

Review the annuity company with a licensed annuity agent before purchasing a SPIA. Ensure AM-Best highly rates them and will be around your lifetime and your spouse’s life.

How To Purchase A QLAC?

To buy a Qualified Longevity Annuity Contract (QLAC), here are your step-by-step instructions:

1. Assess your situation: Your life expectancy, investment objectives, and financial needs. QLACs are more suitable if you have a traditional IRA or 401(k).
2. Consult an independent annuity specialist: Get professional help to understand if a QLAC is a good fit for you, considering its pros and cons.
3. Understand the terms: Remember, you can’t change the contract terms or get a lump-sum payout once purchased.
4. Decide on the annuity start date: Payments usually begin more than a year after purchase but no later than age 85.
5. Make the purchase: Avoid early withdrawals, which may result in penalties.

 

New QLAC Rules For 2023

New rules for the Qualifying Longevity Annuity Contract (QLAC) will come into effect starting in 2023.

Under the new regulations, individuals can use up to $200,000 or 25% of their qualified account balances, whichever is less, to purchase a QLAC.

Qualified Longevity Annuity Contract Insurance Agent

As an insurance agent dealing with a Qualified Longevity Annuity Contract (QLAC), Integrity Now Insurance Brokers’ role is crucial in guiding clients through the annuity process.

QLAC is essentially a deferred income annuity that provides an additional income stream for retirees. Our QLAC annuity experts by your side can make all the difference in how you secure your retirement.

So why do you need a licensed QLAC insurance agent? Because they’re experienced, knowledgeable, and can help you to:

• Navigate through complex retirement planning strategies
• Understand the pros and cons of choosing a QLAC
• Make a well-informed decision that’s tailored to your future financial needs.

When you are ready to purchase the QLAC that makes the most sense for your retirement, contact Integrity Now Insurance Brokers, and we will help you review all available QLAC providers.

As an independent annuity agency, we represent dozens of insurance companies allowing our clients to buy the best QLAC annuity. Contact us today for your QLAC Annuity Quote.