A Qualified Longevity Annuity Contract (QLAC) is a deferred annuity providing a payout to the fullest extent. QLAC as the name suggests is a pension longevity annuity. It begins with receiving investment from a professional retirement plan. Therefore, in a Qualified Longevity Annuity Contract, the fund is an Individual Retirement Account (IRA). Therefore, let us know about the IRA.

What is the IRA?

IRA or Individual Retirement Account is an investment with a tax advantage. Most individuals use it to earmark funds as savings as retirement age approaches. A wise move indeed for those who seek a predetermined income guaranteed at regular intervals. There are several types of IRAs as of 2020:

IRA TypeEmployee Contribution Limit – 2020Tax-deferred ContributionsTax-free DistributionsSubject to Required Minimum Distribution: starting at 70.5 years
TraditionalDollar 6000, Dollar 7000, if 50 years or olderYes, but individual deduction amounts are based on income, filing status, retirement plan coverage through the employerNoYes
RothDollar 6000, Dollar 7000, if 50 years or olderNoYesNo
SEPAn amount lesser than 25 percent of compensation or Dollar 57000Business deductions for employee contributions are limited to lesser than your total contributions or   25 percent of employees contribution Self-employed individuals must use a special formula to calculate the number of contributions they can deductNoYes
SimpleDollar 13, 500, Dollar 16,500 if 50 or olderAll contributions made to employees SIMPLE IRAs by the plan owner are tax-deductible Self-employed individuals can also deduct contributions made to their own SIMPLE IRANo Yes

A QLAC offers monthly payout in the IRA as guaranteed in the contractual agreement. Also, protected from stock market fluctuations. Further, in compilation with IRA requirements exemption is granted from Required Minimum Distribution (RMD) regulations and rules. This is until payout starts to roll in soon after a specific annuity starting date.

The key takeaways in a Qualified Longevity Annuity Contract :

Qualified Longevity Annuity Contract (QLAC) is a retirement strategy where a portion of the RMD is deferred until a maximum age limit of 85 years. The current rules in 2020, specify that annuitant can take twenty-five percent of their IRA, if not Dollar 135,000, which is less in order to buy a QLAC. A QLAC carries one main benefit, a tax deferral that is offered in RMDs.

In general, Qualified Longevity Annuity Contract is an investment in old age that gives a guaranteed fund in a qualified retirement plan, including IRA. Furthermore, it can be turned into a lifetime income without violation of RMD rules for those persons who are turning 72 years. Moreover, a spouse or somebody else can be a joint annuitant regardless of how long they are alive. Nevertheless, some conditions are applicable in this case.

Undoubtedly, the best feature of QLAC is its predetermination value. It is the term amount quoted in the QLAC contract while signing the agreement. In particular, QLAC is a long period of insurance: a longevity plan in retirement income. Besides the biggest worry facing by several people is outliving their money as they grow old. At last, it requires just one payment in the beginning as it comes without an annual fee.


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