The Tax-Advantaged Qualified Longevity Annuity Contract (QLAC) could give you cash flow during retirement. Add me on Instagram: michellemarki

If you’re worried about running out of money during retirement, you might want to consider buying a Qualified Longevity Annuity Contract or QLAC for short.

An annuity is an insurance contract you can buy to provide a steady income. This could be thought of as being similar to a pension, except you’re paying for it not the company you worked for.

A Qualified Longevity Annuity Contract is a deferred income annuity that gives you payouts at a future age. For example, if you buy a QLAC at age 65, you might set it to start giving you payouts at age 80 or 85.

As of 2024, you can buy a QLAC in the amount of either $200,000 or 25% of your retirement account (such as IRA or 401k) balance, whichever amount is lower.

While a QLAC may not be on a younger person’s mind, if you’re in your 60s or 70s, you might want to look more closely at this type of annuity.

The QLAC is tax advantaged in that you can use some of the money from a retirement account like an IRA to purchase the QLAC, and then you would have a lower balance left on which Required Minimum Distributions (RMD) would make you withdraw a yearly portion and be taxed on.

In other words, you could save on income taxes when you are forced to do RMDs starting at age 73 for those born in 1950 and later.

Why would retirees invest in a QLAC when they could just invest in stocks? That is a great question and a judgment call. With a QLAC, the risk of your money’s value is transferred onto the insurer and how long you will live, whereas with stocks the risk is dependent on the market’s behavior and your own decision-making.

There are benefits and drawbacks that I discuss in the video, so pay close attention!

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If you are nearing retirement and looking for a way to secure a steady income stream for your later years, you may want to consider a Qualified Longevity Annuity Contract (QLAC). A QLAC is a type of tax-advantaged annuity that is specifically designed to help retirees plan for the possibility of outliving their savings.

So what exactly is a QLAC? In simple terms, a QLAC is a deferred annuity contract that allows you to make a lump sum payment to an insurance company in exchange for guaranteed income payments that begin at a later date, usually around age 85. The key feature of a QLAC is that it is exempt from Required Minimum Distributions (RMDs) until the income payments begin, which can help you minimize taxes and preserve assets in your retirement accounts.

One of the main benefits of a QLAC is that it provides a reliable source of income that you cannot outlive. This can be especially valuable for individuals who are concerned about the risk of running out of money in retirement. By purchasing a QLAC, you can ensure that you will have a steady stream of income in your later years, regardless of how long you live.

Additionally, the tax benefits of a QLAC can help you maximize the growth of your retirement savings. Because the funds used to purchase a QLAC are not subject to RMDs until the income payments begin, you can continue to grow your retirement account tax-deferred for a longer period of time. This can be particularly advantageous for individuals who do not anticipate needing to access their retirement savings until later in life.

It is worth noting that there are certain limitations to QLACs. The IRS limits the amount of money that can be invested in a QLAC to the lesser of $135,000 or 25% of your total retirement account balance. Additionally, the income payments from a QLAC must begin by age 85, so it may not be suitable for individuals who are looking for immediate income in retirement.

Overall, a QLAC can be a valuable tool for retirees looking to secure a reliable source of income in their later years. By taking advantage of the tax benefits and guaranteed income provided by a QLAC, you can help ensure that you will have the financial resources you need to enjoy a comfortable and secure retirement.