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Qualifying Longevity Annuity Contract

As people are living longer and healthier lives, it`s important to plan for retirement accordingly. One way to do this is by investing in a Qualifying Longevity Annuity Contract (QLAC).

What is a QLAC?

A QLAC is a type of annuity contract that provides a guaranteed stream of income at a future date. The QLAC is specifically designed to help individuals delay receiving taxable distributions from their Individual Retirement Account (IRA) or 401(k) until a future date, typically age 85.

How does a QLAC work?

When purchasing a QLAC, the individual pays a lump sum to the insurance company. In turn, the insurance company promises to pay a guaranteed income at a future date, typically starting at age 85. The QLAC is exempt from Required Minimum Distributions (RMDs) until the guaranteed income payments begin, which means that individuals can delay paying taxes on a portion of their retirement savings.

What are the benefits of a QLAC?

The primary benefit of a QLAC is that it provides a guaranteed stream of income for life at a future date. This can help address concerns about outliving retirement savings and provide additional income in old age. Additionally, by delaying taxable distributions from an IRA or 401(k), individuals can potentially reduce their taxable income and tax liability in retirement.

Are there any drawbacks to a QLAC?

One potential drawback is that the individual must sacrifice liquidity by paying a lump sum upfront to the insurance company. Additionally, the guaranteed income payments from a QLAC may not keep up with inflation, meaning that the purchasing power of the payments may decrease over time.

In conclusion, a QLAC can be a useful tool for retirement planning, particularly for those concerned about outliving their retirement savings. However, it`s important to carefully consider the benefits and drawbacks of a QLAC before investing, and to consult with a financial advisor to determine if it`s the right choice for your individual financial situation.