QLACS

With the possibility of a quarter-century or more of retirement, many Americans fear they may outlive their money. The government has recently approved this new product which has both tax and financial implications.

For some, longevity annuities may be a good tool to guarantee a continuing income late in life. They became more attractive last year when the government allowed their use for IRAs and 401(k) plans as qualified longevity annuity contracts, or QLACs.

A QLAC is a deferred-income fixed annuity into which individuals can move 25% of their qualified retirement savings accounts, up to a maximum of $125,000. Instead of receiving immediate payouts, individuals can defer the payouts until age 85, offering tax savings and a guaranteed revenue stream. The longer the individual waits to start taking the money out, the more it grows – and the growth is free of risk and guaranteed. A great tax planning idea is that this planning reduces the amount of RMD subject to income tax.