QLAC: The Retirement Income Planning "Game-Changer"

July 25, 2014

I recently ran in my first 5k race (or any kind of competitive running for that matter) and, to my surprise, actually won first place in my age division.

I never ran track in school or thought I was particularly fast, but if I had to guess, the additional 20 or so pounds I’ve been pushing on my daily runs (my son plus the running stroller) helped get me to a sub-6:30 per mile time. That was my game-changer, but have you heard about the potential game-changer for income planning?

On July 1, the Qualified Longevity Annuity Contract (QLAC) final regulations were issued and provided a new element to retirement income planning. This topic first became an issue in February 2012 when the IRS published proposed regulations outlining an annuity contract that would allow individuals to use a portion of their qualified assets (e.g., IRA, 403(b), 401(k), etc.) to purchase a QLAC, which in turn would allow them to exclude this balance in the calculation of their annual RMDs and defer income payments from the QLAC to no later than age 85, when guaranteed income payments must start. Below are some of the other key QLAC requirements:

  • The contract must state, when issued, that it is intended to be a QLAC.
  • The contract cannot be a variable or equity-indexed annuity contract.
  • The maximum permitted investment is the lesser of 25% of the contract owner's retirement account balance or $125,000 (adjusted for inflation).
  • The contract must require distributions by no later than age 85.
  • The contract is not permitted to make available commutation, cash value, or similar feature.
  • The contract can offer as beneficiary options a “return of premium” death benefit in addition to a life annuity.

Keep in mind, however, these final regulations were just published in early July 2014. Therefore, it might take a little while before insurance companies are able to develop and introduce "QLAC-compliant" products to market.

So, ask yourself, do you have any clients that would like to generate a guaranteed income stream in later years and reduce their overall RMDs taken in earlier years? If so, the QLAC final regulations might help manage this goal and be the game-changer they’ve been looking for in their retirement income planning.

As always, if you have any questions about this topic, feel free to reach out to the Retirement Strategies Group at 800-722-2333, ext. 3939.


Annuity withdrawals and other distributions of taxable amounts, including death benefit payouts, will be subject to ordinary income tax. If withdrawals and other distributions are taken prior to age 59½, an additional 10% federal tax may apply. A withdrawal charge and a market value adjustment (MVA) also may apply. Withdrawals will reduce the contract value and the value of the death benefit, and also may reduce the value of any optional benefits.

Guarantees are subject to the claims-paying ability and financial strength of the issuing insurance company.

IRAs and qualified plans—such as 401(k)s and 403(b)s—are already tax-deferred. Therefore, a deferred annuity should be used only to fund an IRA or qualified plan to benefit from the annuity’s features other than tax deferral. These include lifetime income and death benefit options.



Picture of Chad Goforth

Chad is currently an Attorney Consultant for the Corporate Law Department at Pacific Life. Previously, he was a Senior Retirement Strategies Consultant, bringing more than 13 years of industry experience to his role and providing technical insights to our sales team and registered representatives on a variety of issues including IRAs, qualified plans, annuities, and estate planning issues.

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