Questions About QLACs

Dear Readers: Over the past seven months, I’ve received several dozen questions about a relatively new retirement product called a qualified longevity annuity contract. Though I’m not an annuity aficionado, I think this annuity may be an impressive product. Like many folks, if you are concerned about the risk of outliving your money, a QLAC could be an interesting solution. According to Morningstar’s mortality tables, the median life expectancy of a 65-year-old man is 86, and for a woman, it’s 88. For a married couple who are both 65, there’s a 50 percent chance one of them will live to 92. A $100,000 investment in a QLAC at age 65 could, by the time you are 85, pay you $50,000 a year for life. If you’re fearful of living too long, continue reading.
–What is a QLAC? A qualified longevity annuity contract is a deferred income annuity that allows the owner to defer his required minimum distribution, or RMD. QLACs were authorized by the Department of the Treasury in July 2014. Currently, with traditional retirement plans, participants must begin taking distributions at age 70 1/2. However, the Treasury Department, with the approval of Congress, allows retirement plan investors to defer a portion of their RMD until age 85 via the purchase of a QLAC.
–Can I purchase a QLAC at 70 1/2? Any individual retirement account, or IRA, owner can purchase a QLAC, as long as he or she has satisfied his or her RMD requirements. But the maximum issue age is 75.
–What is the maximum amount one can invest? An investment in a QLAC can’t exceed $125,000 or 25 percent of the money in your traditional IRAs, whichever is less.
–Can I buy a QLAC with my Roth IRA? Roth IRA balances can’t be put into a QLAC, and they are not used in the 25 percent calculation above.
–If I have several retirement accounts, how do I calculate the premium? Assume your Roth IRA is worth $200,000, your traditional IRA has a $400,000 balance and your 401(k) is worth $300,000. Follow the numbers: 1) Roth funds are not included when calculating your QLAC investment amount. 2) Your $400,000 IRA allows you to invest 25 percent, or $100,000, in a QLAC. 3) If you transfer $100,000 from your 401(k) to your IRA (tax-free), you can invest $25,000 more in the QLAC, for a $125,000 total.
–Can I buy a QLAC for my 401(k)? Yes, if you manage the 401(k), but if your company manages the plan, you must ask the plan administrator. The maximum contribution is also $125,000.
–Will QLAC amounts increase? Yes. Today’s $125,000 maximum will be indexed for inflation and then adjusted in $10,000 increments.
–At what age must I begin to take distributions? You must begin taking distributions no later than your 85th birthday. You may begin taking payment prior to 70 1/2, though it may not be financially appropriate.
–Is there a minimum or maximum age to buy a QLAC? The minimum age is 18, and the maximum age is 75.
–What if I buy a QLAC and decide I don’t want it? The rules are strict. It’s irrevocable. When you fund a QLAC, it can’t be unfunded.
–What happens if the insured dies before payments begin? The payments can be directed to a spouse or beneficiary.
–What are my tax liabilities? The exact tax responsibility depends on your marginal tax rate, which could be as high as 39.6 percent.
–Can I use the assets in a fixed annuity or a variable annuity that is in my IRA to buy a QLAC? Yes. But the Treasury requires a new contract to be written, and you will have to pay any early withdrawal fees and/or market value adjustments.
–What insurance company should I use? Select the insurer with the highest financial rating and an insurance professional whom you can trust implicitly. Northwestern Mutual, MassMutual and MetLife are excellent insurers.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

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Drew Limsky

Drew Limsky



Drew Limsky joined Lifestyle Media Group in August 2020 as Editor-in-Chief of South Florida Business & Wealth. His first issue of SFBW, October 2020, heralded a reimagined structure, with new content categories and a slew of fresh visual themes. “As sort of a cross between Forbes and Robb Report, with a dash of GQ and Vogue,” Limsky says, “SFBW reflects South Florida’s increasingly sophisticated and dynamic business and cultural landscape.”

Limsky, an avid traveler, swimmer and film buff who holds a law degree and Ph.D. from New York University, likes to say, “I’m a doctor, but I can’t operate—except on your brand.” He wrote his dissertation on the nonfiction work of Joan Didion. Prior to that, Limsky received his B.A. in English, summa cum laude, from Emory University and earned his M.A. in literature at American University in connection with a Masters Scholar Award fellowship.

Limsky came to SFBW at the apex of a storied career in journalism and publishing that includes six previous lead editorial roles, including for some of the world’s best-known brands. He served as global editor-in-chief of Lexus magazine, founding editor-in-chief of custom lifestyle magazines for Cadillac and Holland America Line, and was the founding editor-in-chief of Modern Luxury Interiors South Florida. He also was the executive editor for B2B magazines for Acura and Honda Financial Services, and he served as travel editor for Conde Nast. Magazines under Limsky’s editorship have garnered more than 75 industry awards.

He has also written for many of the country’s top newspapers and magazines, including The New York Times, Washington Post, Los Angeles Times, Miami Herald, Boston Globe, USA Today, Worth, Robb Report, Afar, Time Out New York, National Geographic Traveler, Men’s Journal, Ritz-Carlton, Elite Traveler, Florida Design, Metropolis and Architectural Digest Mexico. His other clients have included Four Seasons, Acqualina Resort & Residences, Yahoo!, American Airlines, Wynn, Douglas Elliman and Corcoran. As an adjunct assistant professor, Limsky has taught journalism, film and creative writing at the City University of New York, Pace University, American University and other colleges.