Estate Planning Alert: Qualified Longevity Annuity Contracts
The IRS has recently issued regulations which permit an IRA owner or employer-sponsored retirement plan participant to delay required minimum distributions (RMDs) by investing a portion of plan accounts into fixed annuities called Qualified Longevity Annuity Contracts (QLACs).
The participant can invest in QLACs up to the lesser of $125,000 (adjusted for inflation beginning in 2015) or 25% of total IRAs and retirement plan balances. A QLAC must state that it will pay fixed dollar amounts at stated intervals over a number of years for the life of the participant, beginning no later than attainment of age 85. Payments from QLACs are fully taxable and are not credited against RMDs from non-QLAC retirement plan assets.
A QLAC may offer a return of premium option so that, if the participant dies before receiving payments equal to the amount paid for the contract, the remaining amount (payable as either a lump sum or a life annuity) can be paid to the beneficiary, or, if the participant dies before the required annuitization date, rolled over by a surviving spouse or transferred to an inherited IRA. Of course, the rate of return in this case will be zero. On the other hand, if the participant or his or her designated beneficiary has a life payment contract and outlives his or her life expectancy, the rate of return can be positive, and the individual can be assured of not running out of income.
A QLAC may be a viable option for an IRA owner or retirement plan participant who is in good health and does not expect to need the full amount of his or her expected RMDs. Should you have any questions, regarding QLACs, please contact one of our estate planning attorneys.