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In 2014, our “friends” at the IRS and the Treasury Department introduced the newest product to the annuity category, the Qualified Longevity Annuity Contract (QLAC).
I fell in love with this QLAC strategy the first time I was told it was in the works, and immediately wrote the QLAC Owner’s Manual in 2014 to help consumers fully understand this fantastic product. In fact, the QLAC Owner’s Manual was the first one of my six Owner’s Manuals that I published. Below are some key benefits that QLACs provide.
*You can use Traditional IRA $$ to fund a QLAC
*Your spouse or partner can be set up for “Joint Life” payments
*QLAC $$ is not used to calculate your Required Minimum Distributions (RMDs)
*QLAC income can start as soon as age 72 (formerly age 70 ½)
*QLAC income can start as late as age 85
*You can structure your QLAC so that an unused $$ goes in full to your listed beneficiaries
*You can ladder QLACs to start at different ages in the future
QLACs are, in essence, Deferred Income Annuities (DIAs). A Deferred Income Annuity (DIA) is the cousin of a Single Premium Immediate Annuity (SPIA). The only difference between these annuity types is that QLACs can only be used in qualified retirement plans like your Traditional IRA.
QLACs, DIAs, and SPIAs are all in the same lifetime income family. All have no moving parts, no annual fees, and are a simple and easy to understand the transfer of risk strategy that contractually guarantees a lifetime income stream. They all solve for “longevity risk,” which is the fear of outliving your money. By the way, annuities are the only product type that contractually provides lifetime income. It started in the Roman Times with SPIAs and continues to this day with QLACs.
A QLAC is a type of fixed annuity that is issued by life insurance companies and provides a guaranteed monthly lifetime income stream regardless of how long you live. QLACs are regulated at the state level and need to be quoted with all carriers approved in your specific state of residence to find the highest contractual guarantee for your situation. Using my proprietary annuity calculators at TheAnnuityMan.com, you can do just that with no sales hassle. You always control the process.
Qualified Longevity Annuity Contracts (QLACs) have a limitation on how much money you can place in the policy. For 2020, it’s the lesser of 25% of the total account balances for your qualified (IRA type) money...or $135,000. If both you and your spouse/partner have IRA type accounts, then each of you can own a QLAC. My prediction is that every few years, this premium funding limit will be increased by the IRS and the Treasury Department to help people place more of their IRA assets into QLAC income guarantees.
Social Security (the annuity that everyone owns) was never intended to be the primary source of retirement income, even though too many people use it that way. With trillions of dollars in Traditional IRAs, the government is hoping that people start implementing QLACs as part of their guaranteed income floor.
One of the biggest benefit propositions QLACs offer (in my opinion) is the ability to add your spouse/partner for “Joint Life” income guarantees, even though you are using your personal IRA assets. This is a guaranteed lifetime income legacy that should be taken advantage of by most Traditional IRA owners.
In my opinion, QLACs should be a part of every retirement income plan and retirement account strategy because of the guaranteed income it contractually provides. That lifetime income stream is primarily based on your life expectancy(s) at the time you start the income, with interest rates playing a secondary pricing role.
With the new Required Minimum Distribution (RMD rules) 2020 guidelines, you can now have to start taking money out of your IRA at age 72...instead of the previous age rule of 70 ½. So with your Qualified Longevity Annuity Contract (QLAC) strategy, you can have income starting as soon as age 72 and as late as age 85. You can start the income at any time between those ages, and can also split up your QLAC purchase to have multiple policies to ladder income at different intervals. At age 85, the IRS will be “tapping you on the shoulder) to make you turn on that QLAC income stream.
Before you buy a QLAC, you need to read my QLAC Owner’s Manual and have us quote all QLAC carriers using our proprietary calculators to find the highest contractual guarantee for your specific situation.
I also encourage you to schedule a time to speak with me, Stan The Annuity Man®. If you are considering a QLAC, it might be a good idea to speak with the person who wrote the first book on QLACs. I’m also the top independent annuity agent in the country (licensed in all 50 states), and known as “America’s Annuity Agent.”
There’s no bad sales pitches or high-pressure nonsense. I’m a pro, and I’m going to treat you like a professional as well. You will like my brutally factual (no BS) approach, and I will provide you with all of the needed information to make an informed decision on your terms and time frame.