If you're in your sixties or seventies, you'll want to understand two important terms related to how long your retirement funds will last: Required Minimum Distribution or RMD and Qualified Longevity Annuity Contracts or QLACs.
Let's start with RMD. What's a Required Minimum Distribution? Many people don't know the IRS requires after age 72 an IRA beneficiary make Required Minimum Distributions from their IRA. This so-called 'RMD' amount is calculated by dividing the account balance of the IRA investment account by a lifetime expectancy factor from an IRS table estimating life expectancy by age.
What happens if the distribution is more or less than the Required Minimum Distribution? When a distribution is more than the RMD, there is no penalty. An IRA owner can withdraw the full account balance if he or she wants. But if the distribution is less than the RMD, the IRS imposes a penalty equal to 50% of the shortfall of the distribution. Any excess distribution in a prior year cannot be used to reduce a penalty in a current year.
Many people, especially those working in their late sixties and seventies, would prefer to leave their assets in the retirement account to roll up tax-free. That's where QLACs come in. What's a QLAC? A QLAC is a special annuity that is purchased with funds from a retirement account such as an IRA. This annuity will pay a monthly lifetime income starting no later than age 85. QLACs only became available in 2014.
Who's the QLAC investment for? A QLAC is designed for people who are concerned about outliving their retirement assets. A QLAC investment also reduces the Required Minimum Distributions from a retirement account. Does a QLAC purchase reduce the RMD? You bet! A QLAC annuity is not counted as an IRA asset. But there is a limit on how much you can put into a QLAC. That limit is the lesser of 25% of your Qualified Retirement Assets or $135,000.
Interested in learning more? Find out whether a QLAC is right for you by exploring the materials on QLACguru.com website, Facebook page or by calling the number on your screen. Thanks for listening.
Notice: The foregoing video and examples do not portray any one person’s situation. The dramatizations were prepared by the Company to introduce viewers to a new financial product, a Qualified Longevity Annuity Contract. Individual circumstances of a viewer are likely to vary from the examples in the videos. The videos are not tax or legal advice. The financial information, and calculations depicted in these videos are supplied from sources we believe to be reliable. However, we are unable to guarantee their accuracy. These materials are not intended to replace the viewer’s legal, tax and accounting advisors. Any viewer should seek advice from his or her qualified advisors prior to entering into a QLAC purchase. The Company accepts no responsibility for any outcome arising from a QLAC purchase or a failure to make a QLAC purchase. This material is not intended to be used, nor can it be used by any taxpayer, for the purpose of avoiding U.S. federal, state, or local tax penalties.