Update: As of January 1, 2022 the QLAC limit increased to $145,000.
Today we're talking about annuity comparisons, QLACs, Qualified Longevity Annuity Contracts versus DIAs, Deferred Income Annuities. We're going to compare them. We're going to talk about how they differ, how they are the same, why you should look at them, why you shouldn't look at them. In other words, the brutal facts because, as you know, I'm the walking middle finger of annuity truth that just happens to be wearing a crushed velvet sweatsuit.
We're talking about retirement income insurance. That's what annuities provide. Lifetime income guarantees. You got car insurance. You got home insurance. You got fire insurance. You got dental insurance. You got health insurance. Guess what you need? Income insurance, retirement income insurance, and that are what annuities can provide.
We’re talking about Qualified Longevity Annuity Contracts and Deferred Income Annuities today. It all starts with Deferred Income Annuities. Why? Because a Qualified Longevity Annuity Contract is a Deferred Income Annuity. But Qualified Longevity Annuity Contracts can only be used in qualified accounts, i.e., Qualified Longevity Annuity Contracts. They were put on the planet in 2014, which makes QLACs the newest type of annuity. Our friends introduced it at the IRS and the Department of the Treasury because they wanted retirees to start planning for income using their traditional IRA assets. There are trillions and trillions of dollars in IRA's, and the government is always looking at salivating, and go, "IRA has this. How do we do get to those?" That's what they're saying.
But what they want people to do is a plan for future income because Social Security, which is the best inflation annuity on the planet that all of you own, has a Social Security number. So all you annuity haters, you already own an annuity. So calm down a little bit; I know that's a shock. But back to Qualified Longevity Annuity Contracts. The government's saying, "Can you use the IRA assets for future income? Could you do that for us and maybe take some of the load away from Social Security?" That's really what a Qualified Longevity Annuity Contract is all about.
But Qualified Longevity Annuity Contracts at the time of this taping, that's key; at the time of this taping, you can put in up to $135,000 in your personal IRA using money in your IRA to fund a QLAC. The actual rule is 25 percent of your total IRA assets or 135,000, whichever is less, at this taping. Hopefully, they raise it. Hopefully, you're watching this three years from now, going, "That is a 150." But at the time of this taping, it's 135,000. The rules are that you can differ as far as age 85, but you don't have to go that far. Many people go, "I don't want to defer my QLAC to age 85." You don't have to. But that's when the IRS and the Department of Treasury said, you've got to turn on the income.
Now here's the good news about QLACs. Number 1, you can ask your spouse or partner for joint lifetime income using your personal and traditional IRA. That's a good thing. The other thing that I think is positive is that is let's just say you qualify for the $135,000 that you can put into a QLAC, that $135,000 is not used when you go to take your requirement of distributions at the time of this taping, that's age 72. They're thinking about raising it, but at the time of this taping, it is 72.
When you go to factor in your RMDs, and you're adding up all your assets, that 135 in a QLAC is not part of that distribution requirement. But when you turn on that income stream for the QLAC, that income stream amount fully satisfies that amount in the QLAC. QLACs are great. I think they might be the top-selling annuity type in a perfect world. It probably will never happen because many annuity agents, IRAs, and advisors don't even know what a QLAC is.
Although I won't name the firm, I was brought in recently at one of the top five banks to talk to their advisors and explain what a QLAC was because their clients needed to know about it. In my opinion, if you have a traditional IRA, you need to be quoting the QLAC. Because to me, it's a future income stream that can combat potential and future inflation. It's a no-brainer set up with your spouse or partner; it’s a lifetime income stream that neither of you can outlive; as long as you're breathing, you will get the payment.
It's a transfer risk, lifetime income insurance. Lifetime income insurance that the annuity company is on the hook to pay as long as you're breathing. But a QLAC is a Deferred Income Annuity. Deferred Income Annuities were on the planet before QLACs. QLAC is just a version of a Deferred Income Annuity, and it has those limitations. It has to be used in a qualified account and involves premium limitations, etc. But a Deferred Income Annuity, no limitations. Maybe you can use it in an IRA, Roth IRA, and a non-qualified account.
Most carriers will not allow you to run a quote with income starting past age 72 with a Deferred Income Annuity in an IRA. In an IRA, there's no limitation. There is no $135,000 limitation with the Deferred Income Annuity inside an IRA with income starting before age 72, for example. You can put as much as you want. Both QLACs and Deferred Income Annuities have no annual fees, no moving parts, and no market attachments. It's a straight transfer of risk for future income.
If you want the family of annuities for lifetime income, Immediate Annuity, Deferred Income Annuity, QLAC. All the same structure, no annual fees, no moving parts, no market attachments. Deferred Income Annuities are Immediate Annuities that become a Deferred Income Annuity once you defer past that one year. These are great of transfer risk products. You can structure them in a myriad of ways. You could structure life only, life with cash refund, life with installment refund, or life with certain periods.
But I like both of these; Deferred Income Annuities and Qualified Longevity Annuity Contracts because they are simple. You can explain it to a nine-year-old, no offense to nine-year-olds. It's easy to understand. It's a pension and living in a pension-less world were 10,000 baby boomers are hitting age 65 every day, and a lot of you and them and us don't have pensions; this is how we create pensions. This is how we know what the income will be in the future, with Deferred Income Annuities and Qualified Longevity Annuity Contracts.
Never forget to live in reality, not the dream, with annuities and contractual guarantees! You can use our calculators, get all six of my books for free, and most importantly book a call with me so we can discuss what works best for your specific situation.