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Qualified Longevity Annuity Contracts (QLACs)

A qualified longevity annuity contract is a deferred annuity that begins to make payments to contract holders at some future date. Payments can begin no earlier than age 70½, but as late as age 85. The major benefit of a QLAC is that it allows contract owners to legally postpone required minimum distributions (RMDs) to the start of the deferred annuity date. Once funds have been invested in a QLAC, they are no longer taken into account for RMD purposes.

Under current law, an owner of a qualified defined contribution plan, such as a 401(k), a 403(b) plan, a governmental 457(b) plan or an IRA has the ability to take the lesser of 25 percent or $125,000 of their account balance by investing in a QLAC, which could help them to defer taking the RMD on at least this portion of their retirement portfolio.


What are the advantages of a QLAC?

  • QLACs can postpone tax on a portion of your retirement income past the required minimum distribution age (70½). This may be especially helpful to those who are still working at age 70½ and don’t currently need income from their retirement savings.
  • QLACs provide a guaranteed income for life. The annuity contract is a guarantee of monthly or annual payments until death. The income is shielded from any downturns in the stock market.
  • QLACs generally remove the responsibility for investing a portion of the retirement assets later in life. Some individuals may reach an age where they no longer want the responsibility of managing a large pool of assets. The QLAC allows contract holders to transfer some of the investment responsibility without fear of running out of money late in life.
  • QLACs can also allow a client to begin claiming Social Security benefits earlier with the expectation of relying on the QLAC later in life to supplement the reduced Social Security benefit.


What are the disadvantages of a QLAC?

  • QLACs are generally illiquid if a contract owner needs money prior to the payment commencement date.
  • Contract owners may not live long enough to actually need the QLAC funds. In the event of death, the original principal would be paid to the beneficiary as a death benefit.
  • Similar to an immediate annuity, depending upon the rate of inflation, the value of future payments from a QLAC could be decreased. 


Next Steps:

If you think a qualified longevity annuity contract (QLAC) may be right for you, click below to receive a no-obligation annuity quote. Our AnnuityUSA team members are standing by to help you find the perfect annuity to fit your goals!

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