A longevity annuity, or QLAC, which stands for Qualified Longevity Annuity Contract, will allow people to for future income within their 401K or IRA. QLAC has been designed for the young worker who is not yet thinking about retirement to start thinking about retirement.
All annuity payments are based on your life expectancy at the time you take the payment, so the older you are, the less your life expectancy and the higher the payment. QLAC will allow people to piggyback on their social security payments to guarantee a lifetime income stream, says Stan Haithcock, better known as Stan the Annuity Man. Within a 401K, your choices are limited to mutual funds and the like.
There are a couple of catches, however, according to Stan. You can only put up to $125,000 of your IRA or 25% of your total IRA, whichever is less. If you are an IRA holder and you hate paying the taxes on your required minimum distributions when you're age 70 1/2, you can take 25% or up to $125,000 and defer up to age 85 and then lessen your required minimum distributions, which would lessen your taxes. "This is a big deal and I truly believe that's who's going to take advantage of this new QLAC ruling," says Stan.
Stan believes the IRS is looking at this more from the point of view from how much money they're going to lose on RMD taxes. He also thinks the IRS may raise that minimum or they're going to figure out how many people are "playing the RMD game" and then stop the program.
"Every single young worker needs to look at this," Stan says because they need to look at when they plan on retiring and putting a pension plan in place and now 401K's have the QLAC option in which to do that. For the IRA holder, it's a bit more "murky," Stan says because if they don't like paying taxes on their RMD's, this will be something they'll gravitate towards but doesn't mean they'll need it because a QLAC is for future income.
There is also a death benefit with the QLAC and Stan recommends pursuing this should you have any legacies. As of right now, there are no products available and the carriers are actually scrambling to get things out there because they were taken aback by this ruling on July 1. Stan's prediction is they won't be available in mass until 2015.
Stan Haithcock, "Stan the Annuity Man," is a nationally recognized expert on annuities and he spoke with Retirement News Today during this interview. Retirement News Today provides online retirement news video content and is a featured network of Sequence Media Group.