QLACs: A Great Way to Delay RMDs and Create Supplemental Income
As individuals approach retirement age, ensuring a secure and comfortable financial future becomes a top priority. While Social Security benefits provide a valuable source of income, many retirees seek additional strategies to enhance their financial stability and mitigate tax obligations. In this article, we'll explore the benefits of QLACs, how they enable retirees to defer RMDs until age 85, and the maximum funding limits to consider.
What is a QLAC?
Qualified Longevity Annuity Contracts (QLACs) allow retirees to delay taking IRA Required Minimum Distributions (RMDs) while creating another income stream like Social Security benefits. QLACs represent a unique type of annuity designed to provide longevity protection and income security in retirement. Unlike traditional annuities, which typically commence distributions immediately or within a few years of purchase, QLACs offer the flexibility to defer distributions until a later age, thus allowing retirees to optimize their retirement income strategy and potentially reduce tax liabilities.
Delaying RMDs with QLACs
One of the most compelling features of QLACs is a feature allowing the contract owner the ability to delay IRA Required Minimum Distributions (RMDs) until a later age. Retirees can purchase a QLAC with funds from their IRA, effectively reducing their current RMD obligations and providing more control over their retirement income timeline. With a QLAC, individuals can defer RMDs until the maximum age of 85, allowing for greater flexibility in managing their retirement assets and potentially reducing their taxable income during the early years of retirement.
Creating Another Social Security-Like Benefit
In addition to delaying IRA RMDs, QLACs offer retirees the opportunity to create another income stream similar to Social Security benefits. With the purchase of a QLAC, individuals can secure a guaranteed income for life, providing peace of mind and financial security in retirement. This additional income stream can complement existing retirement savings and Social Security benefits, helping retirees maintain their standard of living and cover essential expenses throughout retirement.
Maximizing Tax Efficiency with QLACs
QLACs also offer potential tax advantages for retirees. By deferring IRA RMDs until a later age, individuals can potentially reduce their taxable income during the early years of retirement when they may be in a higher tax bracket. Additionally, QLAC distributions are considered ordinary income and taxed accordingly when received, providing retirees with flexibility in managing their tax liabilities and potentially lowering their overall tax burden.
Funding Limits & Considerations
While QLACs offer significant benefits, it is essential for retirees to consider the maximum funding limits when purchasing these annuities. Currently, in 2024, the maximum limit for funding a QLAC is $200,000 per person, allowing individuals to allocate a portion of their retirement savings to secure guaranteed income for life. ClearPlan Wealth Management teams with you to help determine the optimal allocation of funds to QLACs based on your individual retirement goals, risk tolerance, and financial circumstances.
Navigating Retirement Decisions with Confidence
Navigating the complexities of retirement planning and income strategies requires careful guidance. We serve as a trusted advisor for retirees seeking to maximize their financial security and optimize their retirement income strategy. With a focus on personalized solutions and comprehensive wealth management, ClearPlan empowers retirees to make informed decisions aligned with their financial goals and lifestyle preferences. Not all financial advisors are well-versed in the nuances of utilizing a QLAC as part of an investment strategy. Partner with us today and embark on a journey toward a more secure retirement today.
When is the last time your financial planner mentioned QLACs & RMDs?
We talk the talk and we walk the walk – contact ClearPlan Wealth Management today to learn more!
RMDs are generally subject to federal income tax and may be subject to state taxes. Consult your tax advisor to assess your situation. Raymond James and its’ advisors do not offer tax or legal advice. You should discuss and tax or legal matters with the appropriate professional.
