The U.S. Treasury has issued final regulations
for Qualifying Longevity Annuity Contracts
(QLACs) in retirement plans and IRAs. Here’s
what retirement advisors need to know.
Lifetime QLAC considerations:
· In addition to the lesser of $125,000 or
25 percent of account balance premium rule,
a QLAC must not begin distributions later
than attainment of age 85. Distributions
may begin prior to age 85.
· The $125,000 amount will be periodically
indexed for inflation in increments of $10,000.
The 2016 indexed QLAC amount remains
· The $125,000 is an aggregate limit that applies
to all defined contribution plans and IRAs of
· Although the value of the QLAC is excluded
from the account balance to determine RMDs,
the value of the QLAC account balance is
included for purposes of applying the
25 percent limit.
It was only a few months ago when the U.S. Treasury Department issued final regulations for QLACs in employer-provided retirement plans and IRAs. These plans can now purchase
deferred income annuities where an annuitized
payout can start as late as age 85.
Participants in 401(k) plans or IRAs can now
use up to 25 percent of their account balance or
$125,000 (whichever is less) as a premium to buy
a QLAC. The new regulations exclude the annuity
value from the account balance that is used to determine the required minimum distribution (RMD)
participants must start receiving at age 70½.
These new QLACs will help Americans plan for
retirement and assure they have a continuous
stream of income for as long as they live. The new
QLAC rule also applies to other defined contribution plans (i.e. profit sharing plans and SEP plans),
403(b) plans and governmental 457(b) plans. This will
give those approaching retirement an opportunity
to “carve out” an amount that will not be subject to
the RMD rules at age 70½.
Let’s take a look at some of the major provisions
of the new regulations for deferred income annuities
to be considered QLACs:
401(k) PLANS OR
IRAs CAN NOW
USE UP TO
25% OF THEIR
(whichever is less)
AS A PREMIUM
TO BUY A QLAC.