Qualified Longevity Annuity Contract

Qualified Longevity Annuity Contract Explained – Tax Advantaged Annuity (QLAC)

The Tax-Advantaged Qualified Longevity Annuity Contract (QLAC) could give you cash flow during retirement.

If you’re worried about running out of money during retirement, you might want to consider buying a Qualified Longevity Annuity Contract or QLAC for short.

An annuity is an insurance contract you can buy to provide a steady income. This could be thought of as being similar to a pension, except you’re paying for it not the company you worked for.

A Qualified Longevity Annuity Contract is a deferred income annuity that gives you payouts at a future age. For example, if you buy a QLAC at age 65, you might set it to start giving you payouts at age 80 or 85.

As of 2024, you can buy a QLAC in the amount of either $200,000 or 25% of your retirement account (such as IRA or 401k) balance, whichever amount is lower.

While a QLAC may not be on a younger person’s mind, if you’re in your 60s or 70s, you might want to look more closely at this type of annuity.

The QLAC is tax advantaged in that you can use some of the money from a retirement account like an IRA to purchase the QLAC, and then you would have a lower balance left on which Required Minimum Distributions (RMD) would make you withdraw a yearly portion and be taxed on.

In other words, you could save on income taxes when you are forced to do RMDs starting at age 73 for those born in 1950 and later.

Why would retirees invest in a QLAC when they could just invest in stocks? That is a great question and a judgment call. With a QLAC, the risk of your money’s value is transferred onto the insurer and how long you will live, whereas with stocks the risk is dependent on the market’s behavior and your own decision-making.

There are benefits and drawbacks that I discuss in the video, so pay close attention!

If you’re interested in learning how to take control of your finances and start becoming an investor like Warren Buffett, check out my free PDF guide.

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