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

The Tax-Advantaged Qualified Longevity Annuity Contract (QLAC) could give you cash flow during retirement. Add me on Instagram: michellemarki
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: michellemarki....
I look forward to making more investor friends! Please like and subscribe if you learned something or enjoyed my video. Thank you! :)
---
Add me: / michellemarki
Check out my Blog: michellemarki.com
---
Disclaimers: This content is for entertainment, information, education purposes only. Michelle is not a financial advisor and is not providing financial, investment, trading, tax advice, or recommendations. Please consult with a professional financial advisor with a fiduciary duty and responsibility if you need help in your situation. All trademarks, logos, and brand names belong to their respective owners.

[@RainerArencibia]

This is great! Thanks for sharing Michelle!

[@MichelleMarki]

You're welcome, glad you enjoyed my video! :D

[@astrungis]

Thanks, Michelle. Appreciate the info

[@MichelleMarki]

Glad to hear! :) You're welcome.

[@davidg4058]

Thanks for the useful info. I waited until age 70 to collect Social Security, which is 32 percent more than my age 66 benefit. If you had $200k you could throw away for 15-20 years, you can afford to let your SS benefit grow. That's my lifetime "annuity" which also has a COLA. I don't think QLACs are inflation-adjusted and I think you pay taxes on the payouts (deferred money). Finally, like car dealers, the people selling these annuities are paid on commission, so do they really prioritize my needs?

[@MichelleMarki]

Thank you David for your thoughtful feedback on the QLAC topic! I appreciate learning from your perspective and experiences! Happy Holidays!

[@cgrilley]

Great info Michelle!!! I know with an annuity you're shifting the market risk to an insurance company...but what if the insurance company goes under? LIke an AIG situation? In that case are you concentrating your risk in the "maybe good hands" of an insurer?

[@MichelleMarki]

Yes, that is definitely one of my concerns about insurance companies that might not be around by the time you expect to receive the income from the annuity. That's also why we have to try to vet how "reputable" and "reliable" we think an insurer would be among those that offer this type of annuity, and maybe ask around in what other people's experience has been so far? Or try to measure the health of an insurer based on what they take on?

[@SuperThinwhistle]

Do you know of any type of annuity (QLAC or otherwise) that can be purchased in a Beneficiary IRA (an inherited IRA)? It sounds like the 10 year rule, requiring all funds to be fully withdrawn within 10 years, makes it impossible to buy an annuity in such an account. Is that correct? Thanks.

[@MichelleMarki]

Hi there, that's a great question! I have no clue but I hope you might find an answer. Would not the funds from a beneficiary IRA become your own, and then you can decide what to do with it? On a bigger question, how can beneficiaries invest within the inherited IRA unless they have no choice but to disburse the funds and then you invest it in your own account? Good luck!