What is a QLAC Annuity?
A QLAC Annuity, or Qualified Longevity Annuity Contract, is a type of deferred income annuity funded with pre-tax retirement savings from accounts like a 401(k) or traditional IRA. It is designed to provide a steady income stream starting at a later age, typically by age 85. The purpose of a QLAC is to ensure individuals have a guaranteed income for life in their later years, protecting against the risk of outliving retirement savings.
The funds used to purchase a QLAC are excluded from the Required Minimum Distributions (RMDs) calculation up to the maximum allowed limit, currently set at the lesser of 25% of the retirement account balance or $200,000 (as adjusted for inflation). This allows retirees to defer a portion of their taxable income while securing a guaranteed future payout.
QLACs offer flexibility in when the income begins, with policyholders choosing the age at which they want payments to start. Once the income begins, it continues for the remainder of the individual’s life, making QLACs a popular choice for those seeking financial security in advanced age.
While QLACs provide predictable income, they are not as liquid as other investments. Early withdrawals are not allowed, and once the contract is in place, the terms are fixed, so it’s essential to understand the commitments before purchasing a QLAC.
