The QLAC Product Changed Annuities Forever
QLACs are beneficial in many ways and growing in popularity as consumers become more familiar with their usefulness. QLAC benefits are true value propositions. Knowledge of the many QLAC benefits can help you make an informed buying decision. There are primary benefits of Qualified Longevity Annuity Contracts that can help you decide if this product fits in your portfolio.
When Qualified Longevity Annuity Contracts (QLACs) were approved on July 1st of 2014 by the IRS and the Department of the Treasury for use in specific retirement plans and Traditional IRAs, it was what I called “The day that changed annuities forever.”
There are many QLAC strategy benefits.
I hope to motivate you to take a serious look at a QLAC benefits to find a fit with your specific situation. Investigating the many benefits will help you to get started understanding this unique annuity product.
- QLACs offer full principal protection.
They are fixed annuities, and have no market attachments, so market volatility does not affect these strategies.
- QLACs have no annual fees.
Fixed annuities by design are simple and easy to understand. QLACs can be fully explained to and understood by most children. By the way, that is a good thing.
- QLACs have lifetime income guarantees.
QLACs are designed for income, and can provide a guaranteed income stream you can never outlive. QLAC benefits are simple and guaranteed.
- QLACs are simple, transparent, and easy to understand.
Unlike variable and indexed annuities where most agents do not even understand what they are selling, QLACs are simplistic and efficient future income strategies.
- QLACs straightforward proposal numbers are not confusing or misleading.
Variable and indexed annuity gunslingers love to promote hypothetical, theoretical, projected, and back tested return scenarios. All of those are non-guaranteed “buy the dream” sales pitches. QLAC proposals ONLY show contractual guarantees.
- QLACs can contain a contractual death benefit for your beneficiaries.
QLACs can be structured for legacy benefits, so all of the money will go to someone in your family and not a penny to the annuity company.
- Laddering strategies can be used to adjust for inflation and possible rate changes.
Even with the premium limitation of 25% of your total IRA assets or $130,000 (whichever is less), QLACs can be laddered for both purchase and income start dates.
- Cost of Living Adjustments (COLAs) can be added to QLACs.
COLAs contractually increase the income stream every year by a specified percentage chose at application. QLAC benefits can include COLAs.
- Younger workers can use QLACs to plan for future income needs.
401ks can offer QLACs within the plan for younger workers to contractually plan for future income needs.
- Money can be added to a QLAC policy ongoing.
QLAC premium limitations will increase with inflation under the rules in place. Also, most QLAC policies allow money to be added up to the premium limits.
- You can defer QLACs payments as far out as age 85.
QLACs can be deferred for a short amount of time or as far out as age 85. It’s your call depending on your specific goals.
- Traditional IRAs, 401ks, 403bs, and eligible governmental deferred compensation plans can offer QLACs.
QLACs will allow both young and old workers (and Traditional IRA owners) to plan for future income needs.
- QLACs by design offer low commissions to the writing agent.
In most cases, the lower the commission the better the product for the consumer. QLACs are such a simplistic strategy that the commissions are low. That’s a good thing.
- A QLAC is a pure transfer of risk future pension plan.
Annuities are really transfer of risk products. You are transferring the risk to the annuity company to solve for a specific situation. QLACs are primarily used as a transfer for risk strategy for future income guarantees.
- Taxes on RMDs can potentially be less when you have a portion of your qualified funds held in QLACs.
QLACs are not counted when calculating Required Minimum Distributions (RMDs). For example, with a $500,000 IRA, you could purchase a $130,000 QLAC under current law and defer that amount to as far out as age 85. Instead of RMD calculations being made on $500,000, you would calculate based on $370,000 instead.
If those aren’t enough benefits for you to at least take a closer look at the QLAC Strategy, then I’m at a loss. Do your homework, get some QLAC quotes, and it just might be a winning strategy for you.
This article was originally posted on the educational platform About.com which is now thebalance.com