Imagine being able to defer your required minimum distribution (“RMD”). If you’re like many of my clients, you dread having to take your annual RMD, which generally requires IRA distributions to begin after age 70½. Unfortunately, due to a 50% tax penalty, any senior would be foolish not to take their RMD. If given a choice, many seniors would rather delay taking their RMDs to minimize their income taxes and also potentially help protect against outliving their money.
Most seniors are unaware that there’s an annuity that that can help. It’s a type of longevity annuity called a Qualifying Longevity Annuity Contract (“QLAC”) and under IRS regulations, RMDs in a QLAC can be delayed until age 85. Not only will this minimize income taxes, it can also help protect seniors from outliving their assets.
To qualify as a QLAC, the annuity must meet several requirements:
- The amount used to purchase a QLAC cannot exceed the lesser of $125,000 or 25% of the participant’s IRA account balances.
- The deferred commencement age for RMDs cannot exceed age 85.
- The annuity contract cannot be a variable or an equity-indexed contract.
- The QLAC cannot offer any commutation benefit or cash surrender right.
- The annuity company must issue an annual report to the IRS and the participant.
If you’re worried about out- living your money and would like to delay your RMDs and income taxes, a QLAC may be worth considering. Because QLACs are relatively new, there are only a handful of companies offering annuity contracts that meet the IRS requirements. Be sure to carefully consider all the pros and cons and how they apply to your situation. Like other options, QLACs may be appropriate for some individuals, but not for others. Contact an experienced elder law attorney for assistance.