Recent Treasury Regulations Can Benefit Retirees

Recent Treasury Regulations Can Benefit Retirees

By Nick Clay

One of a retiree’s greatest fears is running out of income and money in the late stages of retirement. With advancements in modern medicine, the average life expectancy has increased substantially, but most people have not planned appropriately with their finances for a longer life. Pensions are increasingly rare and social security is not designed to fund 100% of your income needs in retirement.

You’re probably not familiar with the Qualified Longevity Annuity Contract (QLAC), but due to recent changes to U.S. Treasury regulations it has become a viable option to help with this ever increasing retirement concern. I believe there are two schools of thought with the QLAC – it can be used as another piece of the pie to help make sure retirees don’t outlive their money late in retirement – and/or – they can be used for clients who do not want to take their Required Minimum Distribution (RMD), or don’t need the money from their RMDs, and thus do not like paying the tax on the RMDs.

Here are some quick facts about QLACs:

  • You can put up to 25% of your IRA/401(k) balance in a QLAC – up to a max of $125,000
  • The money you put into a QLAC is excluded from the RMD calculation – thus reducing your RMD amount and the associated tax each year going forward
  • The longer you wait to tap the income in the QLAC the more income you get. Income can be deferred all the way to age 85 and provides longevity insurance as an added benefit
  • If the owner of the QLAC dies once income is started, there is a cash refund to beneficiaries of purchase amount minus withdrawals
  • No cost or fees associated with the QLAC
  • No stock market risk
  • Flexibility and predictability

There are two types of people this could work for. The person in their 60s with a good amount of IRA assets who wants to set money aside to exclude from future RMDs and also put a guaranteed income stream in place for later in retirement. Example: a 65 year old man puts $100,000 in an immediate annuity in return for income of $550/month starting right away. The same investment in a QLAC with an income start date of age 85 would pay more than 6 times as much at around $3,600/month. Plus they get the added benefit of reducing the RMDs and taxes owed on RMDs each year.
OR
The person who is already taking RMDs, doesn’t need the money and doesn’t like paying Uncle Sam. 🙂

If you think this is something that you might benefit from, or if you would like to explore this strategy in more depth, please let us know. We are happy to help.

Comments are closed.

Form ADV Part 2A

Form CRS