Questions to Ask Your Annuity Salesperson
Today we're talking about annuity comparisons, QLACs, Qualified Longevity Annuity Contracts, versus DIAs, Deferred Income Annuities. We are going to compare them. We're going to talk about how they differ, how they're the same, why you should look at them, and 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. Lifetime income guarantees are what annuities provide and 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.
Actually, Deferred Income Annuities are the newest type of annuity, and were introduced by our friends 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 and trillions and trillions and trillions of dollars in IRAs. What they want people to do is plan for future income. Social Security is the best inflation annuity on the planet and all of you already own it. With Qualified Longevity Annuity Contracts, the government is saying, "Can you use the IRAs for future income? Could you do that for us and maybe take a little bit of load away from Social Security?" That's really what a Qualified Longevity Annuity Contract is all about.
Qualified Longevity Annuity Contracts, at the time of this draft, 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% of your total IRA assets, or $135,000, whichever is less. Hopefully, you're reading this three years from now, going, "Stan, it's 150." But currently, it's 135,000. Now, the rules are, you can defer as far out as H85, but you don't have to go that far. A lot of people go, "Well, I don't want to defer my QLAC to H85." You don't have to, but that's when the IRS and the Department of the Treasury says, "You've got to turn in the income."
Now, here's the good news about QLACs. Number one, you can add your spouse or partner for joint lifetime income using your personal and traditional IRA. The other thing that I think is a positive 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 required minimum distributions, that's age 72. They're thinking about raising it, but, at the time of this draft, it's 72. So when you factor in your RMDs and you're adding up all your assets, that 135 in a QLAC is not part of that required minimum distribution. But, when you turn on that income stream for the QLAC, that income stream amount fully satisfies the amount in the QLAC.
In a perfect world, I think QLACs might be the top selling annuity type on the planet. The reason it probably will never happen is that a lot of annuity agents, RAs and advisors don't even know what a QLAC is. In my opinion, if you have a traditional IRA, you need to be quoting a QLAC, because, to me, it's a future income stream that can combat potential and future inflation. It's a no-brainer. Plus you can set up with your spouse and or partner with a lifetime income stream that neither of you can outlive. As long as you're breathing, the annuity company is on the hook to pay.
Moving on, 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, has premium limitations, et cetera. But on the other hand, a Deferred Income Annuity pretty much has no limitations. I mean, you can use it in an IRA, a Roth IRA, and in a non-qualified account. Now, in an IRA, most carriers will not allow you to run a quote that has income starting past age 72. With a Deferred Income Annuity, there's no limitation. There's no $135,000 limitation with a Deferred Income Annuity inside of an IRA with income starting before age 72, you can put as much as you want.
Both QLACs and Deferred Income Annuities are a straight transfer of risk for future income. Deferred Income Annuities, in essence, come from the Immediate Annuity. If you want the family of annuities for lifetime income, Immediate Annuity, Deferred Income Annuity, and QLAC all have the same structure with no annual fees, no moving parts, and no market attachments. Really, an Immediate Annuity becomes a Deferred Income Annuity once you defer past that one year time period.
They are all great transfer risk pension products, and you can structure them a myriad of ways. You could structure them life only, or life with cash refund, or life with installment refund, or life with a certain period. Ultimately it's a question of what do you want the money to contractually do and when do you want those contractual guarantees to start? From there I will run customized quotes, quoting all carriers. Whatever you answer, I'm going to take that answer and say, "Okay, this is what we need to do with the IRA asset, or non-IRA asset, or Roth IRA assets."
But I like both 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 a pension. And living in a pension-less world where 10,000 baby boomers are hitting age 65 every single 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's going to 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.