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Retirement Withdrawal Strategies with QLACs

Stan Haithcock
March 17, 2022
Retirement Withdrawal Strategies with QLACs


Today's topic is retirement withdrawal strategies using QLACs, Qualified Longevity Annuity Contracts, the newest version of annuity types in the country put on the planet in 2014. We will go over how to use that product with your retirement withdrawal strategies.

Qualifying Longevity Annuity Contracts were put on the planet in 2014 by our friends at the IRS and the treasury department. Yes, those people came up with an annuity; why did they do that? Because social security, the best inflation annuity on the planet, was never put on the planet to be the primary source of people's retirement income. With trillions and trillions of dollars of IRA assets on the books, the treasury department and the IRS said, "You know what, you can use your IRA assets to buy an annuity for a lifetime income stream." That's fantastic, I'm all for it, yes, you should do that.

Now, at the time of this taping, look at the date right now, stop, look at the date. There are some specific rules for funding of QLACs, which will change, so if you're watching this five years from now, which you should be just for reference standpoint, it's going to be a different amount than you can put in QLACs. But at this point, at the time of this taping, you can put in the lesser amount of 25 percent of your total IRA assets, your total qualified assets, or $135,000. Now that's going to go up; it’s just is because it should.

People should be able to use their IRA assets to buy an annuity for future income. At this taping, they allow you to do that, but a $135,000 per person, so if you have all these qualified accounts, then your spouse or partner has all these qualified accounts. Therefore, you both come by a Qualified Longevity Annuity Contract. You don't have to go this far out, but the farthest out they'll allow you to differ is age 85. Anytime between 85 and before that, you can start a lifetime income stream, and you can add your spouse or partner as a joint lifetime income stream recipient, which is great.

Most of them that we structure are joint life with a cash refund. From a retirement withdrawal strategy standpoint, QLACs, Qualified Longevity Annuity Contracts should be positioned as that future income stream using IRA assets to combat future inflation possibly, but it's a pension. You are breathing; the annuity companies are on the hook to pay as long as you breathe for the rest of your life. If you set up a joint with your spouse when you pass away, even though it's your IRA, they will continue the income stream uninterrupted and unchanged.

Now, QLACs can only be purchased with traditional IRA assets and some 401 k type assets. Those are starting to seep into some qualified plans and allow people to buy this future income stream. But it cannot be purchased in, a Roth IRA cannot be purchased in a non-qualified account. Traditional IRAs are the primary place where people use Qualifying Longevity Annuity Contracts for which retirement withdrawal strategy is part of your overall income floor. Social Security, pensions if you're so fortunate, dividend income, side hustle, whatever you're doing to have that money coming in, Qualified Longevity Annuity Contracts will also provide that lifetime income stream.

Now, you can get quotes on QLACs on my site by going to the QLAC calculator, and you put in your information, confidential, non-shared. Feel comfortable with that; put in your information, you'll see the highest contractual guarantees for your specific situation. People ask me, "Hey Stan, how about this QLAC thing, the best carrier out there, the best company that provides QLACs?" There is no best company, we quote them all. We'll show you the highest contractual guarantee available for your specific situation, but don't fall in love with the carrier name, fall in love with a contractual guarantee.

Remember, you own an annuity for what it will do, not what it might do®, the contractual guarantees of the policy, period. With QLACs, we're quoting for that highest contractual guarantee. Let's go back to the rules again with QLACs. You have to start the income at 85; that’s as far out as you can differ. But at the time of this taping, required minimum distributions have to start at, say, age 72, so you can start your QLAC income at age 72, 73, 74, 75, 76, and on and on. But let's just say the government says, you know what, RMDs, it's not 72 anymore, it's 75. Then with QLACs, you will need to start income; 75 would be the soonest, and then out to age 85. I'm assuming that they'll change the 85 as well.

But just remember, the sooner you can start the income is the current RMD age. You can structure them your life or joint-life with Qualified Longevity Annuity Contracts with your spouse or partner. You can run a joint life or single life only or joint life, or a single life with a cash refund. Now, the income coming from a QLAC is coming from your IRA. Remember, that will be taxed at ordinary income levels. That income stream is going to be taxed at ordinary income levels. The other positive about QLACs is that you are qualified to put $135,000 in a QLAC; remember the rules, it's the lesser of 25 percent of your total IRA assets or $135,000 at the time of this taping. You had a million-dollar IRA, and you qualified obviously for the $135,000 QLAC.

When you do your requirement of distribution calculations, that $135,000 is not part of the required minimum distribution calculation. Now, Stan, The Annuity Man’s® opinion, America's Annuity agent®, should you buy the QLAC just for that sole purpose? No. In my opinion, you should buy the QLAC to attach your spouse or partner, in most cases, for the lifetime income stream. If you do not have a spouse or partner, it's a good way to hedge inflation because you can have income starting at a future date if inflation is an issue.

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.

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