Can You Defer Taxes with a Qualified Longevity Annuity?

Can You Defer Taxes with a Qualified Longevity Annuity?

| October 07, 2016

Are you worried about the taxes you will be required to pay when you have to start taking required minimum distributions (RMDs) from your retirement accounts at the age of 70 ½? Does the possibility of increased medical expenses or the need for long-term care services keep you up at night?

If you answered yes to those questions, you are not alone. Many Baby Boomers are experiencing the same concerns as you. Fortunately, the IRS has recently passed regulations that address your concerns. A Qualified Longevity Annuity Contract (QLAC) may be a solution for seniors to defer taxes on their RMDs and provide for health care costs later in life.

What Is A Qualified Longevity Annuity Contract?

A QLAC is an annuity, which means it will pay you a fixed annual amount for the remainder of your life. Specifically, a QLAC is a form of a deferred annuity, so you do not have to begin receiving payments immediately, and this offers flexibility. Payments can start anytime up until age 85. For example, you could purchase a QLAC now and not receive any payments until you are 85, but then receive payments for the rest of your life, no matter how long you live.

How Will A QLAC Help Me?

The IRS is now allowing owners of certain qualified retirement plans, including traditional IRAs, to move some of their assets into QLACs. Roth IRAs and inherited IRA assets, however, do not qualify. If you own an eligible account, you can transfer up to 25% of the assets in that account (up to $125,000) into a QLAC. There are two reasons that a QLAC may be beneficial to you:

1. Decreased Tax Liability

It is helpful to transfer assets into a QLAC before turning 70 ½. Once you turn 70 ½, you are required to begin taking required minimum distributions, which are taxed as regular income. Moving funds out of your retirement accounts decreases your required minimum distributions, which, in turn, decreases the amount of taxes you need to pay.

2. Steady Income Stream

A QLAC also offers future security. According to the Social Security Administration, one in ten 65-year-olds today will live past age 95. Such longevity can be worrying if you don’t think your money will last that long. With a QLAC, you know you can depend on a stable income, no matter how long you live.

How Do I Know If A QLAC Is Right For Me?

Retirement planning can be complicated with all of the different laws involved and the variety of savings accounts and situations available. Because poor decisions can have such a dramatic effect on your lifestyle in retirement, it is important to work with a qualified, experienced financial professional.

If you think that buying a QLAC might be the answer to your retirement questions, we would love to meet with you to discuss your options further and answer any questions you may have about them. As we get to know your unique situation, we will be able to identify if a QLAC is the best approach for you to take and assist you in the buying process. Give us a call today and let us answer any questions at 715-241-6763 or e-mail

About Patrick Bradley

Patrick Bradley is a financial consultant with more than 30 years of experience specializing in risk management, legacy planning and business continuity strategies. His commitment to helping others extends beyond his work and into his community where he is actively involved with multiple organizations. Learn more by visiting or connecting with Patrick on LinkedIn.

Disclosures: A Fixed Annuity is a long-term financial product designed largely for asset accumulation and retirement needs. Fixed Annuities generally contain fees and charges which include, but are not limited to, surrender charges, administrative fees and for optional contract riders and benefits. Withdrawals and death benefits are subject to income tax. If withdrawals and other distributions are received prior to age 59 ½, a 10% penalty may apply. Fixed Annuities typically carry surrender charges for several years that may be assessed against withdrawals. Certain Fixed Annuity product features, offered by some Fixed Annuity companies, such as stepped-up death benefit, a bonus credit and a guaranteed minimum income benefit, carry added fees. If you are investing in a Fixed Annuity through a tax-advantaged plan such as an IRA, you will get no added tax advantage. Under these circumstances you should only consider buying a Fixed Annuity if it makes sense because of the Fixed Annuities other features, such as lifetime income payments and death benefit protection. All guarantees of a Fixed Annuity are backed by the claims paying ability of the issuing insurer.