Author Topic: QLAC option...any insights?  (Read 1621 times)

Frankies Girl

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QLAC option...any insights?
« on: May 30, 2015, 11:10:14 PM »
Was just discussing basic account stuff with my adviser and he mentioned the upcoming QLAC (QUALIFIED LONGEVITY ANNUITY CONTRACT) option for my mom's situation.

Quick background: mom has pension and SS in excess of her monthly expenses, making her investments just gravy (she has no plans to spend any of it). She has to take MRDs starting this year, and is in the 25% taxable bracket. The distributions are going to push her taxes up even further. And a complicating factor is that she has about 7 funds that were suggested decades ago that are not great (high ERs, front/back loaded, subpar performance) and she would like to sell off but will get hit with a pretty big cap gains tax on the amounts right now.

What I was told is that the QLAC might be something to look into for her in that it will shelter up to 25% of her IRA money and take it out of the MRD calculation and thereby reduce her taxes a bit more.

I'd have to go over her tax forms a bit more closely but I think it unlikely that it would drop her down enough to get her in the 15% bracket so she could sell off the crummy funds and avoid the cap gains. And she doesn't need an annuity at all. She has a halfway decent one already, and wants as much of her money invested and growing. So really the only angle on this that could work in her favor is the potential to shelter a bit of IRA money from taxes, but I'll have to do much more research to see exactly how it works (I'm fuzzy on how annuities work except in the most general of terms) and weigh the benefits of this versus locking money away into an annuity.

http://www.marketwatch.com/story/13-reasons-why-a-qlac-belongs-in-your-ira-2014-11-18?page=1

So does this sound like it might be something that will be of benefit for my mom, or should I skip the research time? I'm thinking the cons outweighing the pros, but very open to being corrected on this. :)




« Last Edit: May 31, 2015, 02:24:45 AM by Frankies Girl »

MDM

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Re: QLAC option...any insights?
« Reply #1 on: May 31, 2015, 12:56:07 AM »
It depends on the specific contract language.  As the "13 reasons" article notes, "Depending on the carrier, you can attach a contractual COLA"  There's a lot of "depending" and "you can" in there....

See also https://www.kitces.com/blog/why-the-new-qualifying-longevity-annuity-contract-qlac-rmd-regulations-for-dont-mean-much-for-retirement-income-yet/, http://www.bogleheads.org/forum/viewtopic.php?f=10&t=143649, and http://www.bogleheads.org/forum/viewtopic.php?f=2&t=142162.

Seems another reason why a typical 100 page annuity contract should be an exemplar for the phrase "the devil is in the details."