Should I Look into Qualified Longevity Annuity Contracts?

The federal government passed the SECURE 2.0 Act in late 2022. This law includes provisions that make it simpler for consumers to fund specific annuities that allow them to postpone paying taxes on their retirement savings until they are 85 years old.

First, What Is an Annuity?
As part of your financial planning approach, you can take into account purchasing an annuity if you're planning for retirement. An annuity is a contract you buy from an insurance provider that ensures you'll get regularly scheduled payments starting on a specific date and continuing until your death.

There are many different types of annuities, which can be used as a well-liked source of income for retirees. For instance, a deferred annuity can be set up to begin payments years in the future, when you foresee needing that income the most, as opposed to an instant annuity, which may start making payments immediately away.

A qualified longevity annuity contract, also known as a QLAC, has experienced several adjustments as a result of SECURE 2.0 that many are finding to be very beneficial.

Continue reading to discover more about this option's potential benefits.

What Is a Qualified Longevity Annuity Contract (QLAC)?
A QLAC is an annuity, similar to other sorts, that you can buy using money from an IRA, 401(k), or 403(b) account and that ensures you will receive retirement income on a predetermined timetable. The following are some QLAC benefits:

Before receiving payouts, you do not have to pay taxes on the money in a QLAC.
In a QLAC, you can name your partner or another party who will be eligible to receive annuity payments after your passing.
The calculation of required minimum distributions (RMDs) does not include funds in a QLAC.

The minimal amount of money you must withdraw annually from some retirement accounts is known as an RMD. (Thanks to SECURE 2.0, you can delay these withdrawals until age 73 instead of having to start them at age 72, and as in 2033, you'll be able to wait until age 75.)

SECURE 2.0 modified the funding rules for QLACs as well, making them even more appealing to some consumers.

Previously, you could only transfer a maximum of $125,000 (or 25% of the account balance, whichever was less) from an IRA or other qualifying retirement account to a QLAC. The 25% restriction has been completely eliminated as of 2023. Additionally, the maximum premium rose to $200,000 (with future adjustments for inflation).

Who Would Find QLACs Most Helpful?
Candidates for a QLAC may include retirees or people who are close to retirement who want to secure a lifetime of guaranteed monthly income.

The word "longevity" is a crucial word in the product name because you can postpone payments and taxes associated with such payments until age 85.

These funds do not count toward Medicaid eligibility in addition to not being used to determine RMDs. In order to shield their retirement savings from taxes and long-term medical costs, a QLAC would be a beneficial tool.

An investor could buy a number of QLACs and "ladder" them so that they begin to pay off in various years. Since these annuities' income is subject to regular rates of taxation, this can aid in tax planning.

When it comes to planning for retirement, annuities are not the only choice. If you want to learn more about how a QLAC can fit into your financial goals, speak with an estate planning lawyer. Locate one nearby.