QLAC Product Strategy Benefits

QLACs reflect a pro consumer action from the IRS and Treasury Dept
QLACs reflect a pro consumer action from the IRS and Treasury Dept. Photo by: Gary Tumilty Photography / Getty Images

July 1st of 2014 was the day that changed annuities forever.

On that day Qualified Longevity Annuity Contracts, or QLACs, were approved by the IRS and the Department of the Treasury for use in specific retirement plans and Traditional IRAs.

There are many reasons why QLACs will soon become the most popular annuity type in the country, so it’s important to know the true value propositions and benefits of QLACs.

Only then it is possible to make an informed buying decision.

There are many QLAC Strategy benefits.

Below is a list of what I feel are the primary benefits of Qualified Longevity Annuity Contracts.  This is not all of the benefits, but enough for you to be motivated to take a serious look at a QLAC to see if it would benefit your specific situation.

QLACs offer full principal protection.

QLACs are fixed annuities, and have no market attachments.Market volatility does not affect these strategies.

QLACs are an annuity with no annual fees.

QLACs have no annual fees.Enough said.

QLACs are designed with a simplistic fixed annuity structure

Fixed annuities by design are simple and easy to understand. QLACs can be fully explained to and understood by most children. By the way, that is a good thing.

QLACs provide guaranteed lifetime income payments.

QLACs are designed for income, and can provide a guaranteed income stream you can never outlive.

A QLAC is a simple and transparent annuity, and therefore easy to understand.

This is unlike variable and indexed annuities, where most agents do not even understand what they are selling, QLACs are simplistic and efficient future income strategies.

Proposal numbers for a QLAC will always be straightforward and clear.

Variable and indexed annuity promoters and gunslingers love showing hypothetical, theoretical, projected, and back tested return scenarios.All of those are non-guaranteed “buy the dream” sales pitches.

QLAC proposals ONLY show contractual guarantees.

You can attach a contractual death benefit for your beneficiaries.

QLACs can be structured for legacy benefits, so all of the money will go to someone in your family and not a penny to the annuity company.

It is possible to use a QLAC laddering strategy.

Even with the premium limitation of 25% of your total IRA assets or $125,000 (whichever is less), QLACs can be laddered for both purchase and income start dates.

Cost of Living Adjustments (COLAs) can be added to QLACs.

COLAs contractually increase the income stream every year by a specified percentage chose at application. QLACs can have COLAs.

Younger workers can use a QLAC to plan for future income needs.

401ks can offer QLACs within the plan for younger workers to contractually plan for future income needs.

Money can be added to a QLAC policy ongoing.

QLAC premium limitations will increase with inflation under the rules in place.Also, most QLAC policies allow money to be added up to the premium limits.

You can defer a QLAC as far out as age 85.

QLACs can be deferred for a short amount of time or as far out as age 85.It’s your call depending on your specific goals.

Traditional IRAs, 401ks, 403bs, and eligible governmental deferred compensation plans can offer QLACs.

QLACs will allow both young and old workers (and Traditional IRA owners) to plan for future income needs.

QLACs offer low commissions to the writing agent.

In most cases, the lower the commission the better the product for the consumer.Because QLACs are such a simplistic strategy, the commissions are low.That’s a good thing.

 A QLAC acts as a future pension plan and eliminates longevity risk. 

Annuities are really a transfer of risk products.You are transferring the risk to the annuity company to solve for a specific situation. QLACs are primarily used as a transfer for risk strategy for future income guarantees.

Taxes on RMDs can potentially be less, with positive results over time.

QLACs are not counted when calculating Required Minimum Distributions (RMDs).For example, with a $500,000 IRA, you could purchase a $125,000 QLAC under current law and defer that amount to as far out as age 85.Instead of RMD calculations being made on $500,000, you would calculate based on $375,000 instead.

If those aren’t enough benefits for you to at least take a closer look, then I’m at a loss.  Do your homework, and look at some QLAC quotes.  It just might be a winning strategy for you.