RMD reduction tool:
A QLAC (Qualified Longevity Annuity Contract) allows individuals to re-allocate and shelter 25% up to $130k of their qualified assets from Required Minimum Distributions. While this isn’t a large amount of funds it is one of the tools individuals can use to defer taxes. Note, the amount is $130,000 per person. For a couple it could be up to $260,000 that they could defer RMD’s up to age 85.
The Two Core Benefits:
1) Reduced RMD’s (up to 25% reduction)
2) Protection against “living too long” (substantially leveraged lifetime guaranteed income in the future)
How QLACs work:
- One can re-allocate 25% of IRA or $130,000 (whichever is less) to buy special QLAC deferred income annuity
- The new QLAC allocation is excluded from RMD calculations (existing IRA still has RMDs)
- QLAC income can be deferred until age 85, if death before 85, heirs get 100% of deposit back
Case Study:
- Client: Male Age 70 w $520,000+ IRA and longevity in his family
- Situation:Facing RMDs he doesn’t need, client asks his advisor for specific help on his IRA
- Result:Advisor successfully reduces RMD by 25% and ensures a lifetime of future income equal to nearly 33% of original deposit every year for life – GUARANTEED!
- Guaranteed Income Payment:$32,914/yr guaranteed for life (starting age 85)
Key for Individuals Who:
- Are approaching age 70 (RMDs for first time)
- Don’t need RMDs to live off and/or who want to reduce RMDs
- Cringe at the thought of additional taxes (RMDs) each year
- Want to reduce tax liability. With $25,000 Standard Deduction, reduced RMDs using a QLAC can get clients into lower total tax bracket or eliminate/reduce taxes on Social Security.
- Are more conservative and worry about market movements and value certainty/guarantees
- Have longevity in their family history or concerned about outliving their money
These plans are very simple to implement and can be a great tool to help reduce some of your RMD’s.
Baypoint Insurance Blog 