Qualified Longevity Annuity Contract (QLAC)
Candlefocus EditorQLACs are designed for those who are looking for a strategy for reducing their Required Minimum Distribution (RMD) and deferring income tax, which can help preserve their retirement savings.
Under current rules, you can use up to 25% of your retirement savings account or up to $135,000 (whichever is less) to purchase a QLAC. The maximum age for which you can purchase a QLAC is 85.
When you ultimately reach 85 years of age, you will receive guaranteed payments for life, which will be based on the specifics of your QLAC contract. These payments can continue through the end of your life, even if our savings have depleted.
In purchasing a QLAC, you can shift some of the market and interest rate risk from your retirement savings to the annuity insurer. While this can offer some security, you should still be sure to maintain some of your retirement savings in higher-yielding, more volatile investments.
The main benefit of a QLAC is the deferral of taxes that accompanies RMDs. When you don't make RMDs, you are effectively deferring the taxes that would normally be due upon distribution.
QLACs can be beneficial for those who are interested in preserving wealth, reducing taxes, and receiving guaranteed income for life. However, it's important to understand the specific terms of your contract before you enter into an agreement. Be sure to consult a financial advisor to evaluate whether a QLAC is the right choice for you.