QLACs: A Secret Weapon to Help Reduce RMDs
Worried about taxes and making your money last through retirement? A qualified longevity annuity contract (QLAC) could be a possibility to consider.
If you are one of many Americans who have salted away large sums of money in 401(k)s and IRAs, you face a tax dilemma. Once you retire, you must generally start taking required minimum distributions (RMD) when you reach age 70½. And the amount, determined by an IRS formula, can be substantial. For example, if you have $1 million in an IRA or 401(k), you must withdraw $36,496.35 at age 70½.
A QLAC isn’t a magic bullet. It’s a fixed annuity, and you cannot change your mind once you have made the deposit. You need to be certain that this is money that you do not need nor want to pay tax on prior to the date the income begins.
One important provision that you can include in your QLAC to protect yourself is an income start date change rider. This will commonly allow you to accelerate the payment of income to as short as five years after you made the purchase if you decide you need additional income. You’re forfeiting liquidity of your money that is deposited into the QLAC in return for being able to reduce the amount of your RMD to a maximum of your age 85.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Kim Franke-Folstad contributed to this article.
Carl W. Zeidler is the founder of Wall Street Financial Group Inc. and the director of financial planning and investment services. He is an insurance professional and an Investment Adviser Representative through Wall Street Financial Group. Wall Street Financial Group is a Registered Investment Adviser in Illinois, Missouri and Tennessee.
-
Tax Breaks That Get Better With Age
Tax Breaks Depending on your age, several tax credits, deductions, and amounts change — sometimes for the better.
By Kelley R. Taylor Published
-
How Inflation, Deflation and Other 'Flations' Impact Your Stock Portfolio
There are five different types "flations" that not only impact the economy, but also your investment returns. Here's how to adjust your portfolio for each one.
By Kim Clark Published
-
Four Unseen Icebergs That Could Sink Your Retirement Plan
Don’t be like the captain of the ‘Titanic’ and ignore warnings to be prepared for risks that lie ahead when planning for your retirement.
By Daniel Sullivan Published
-
Want to Retire Abroad? Five Things to Know About Your Money
To prevent your retirement dream from becoming a nightmare, you should carefully consider the logistical and financial hurdles of retiring outside the U.S.
By Pam Krueger Published
-
For Longevity Protection, Consider a QLAC
A qualifying longevity annuity contract, or QLAC, can help you define a better retirement for yourself by providing guaranteed lifetime income.
By Jerry Golden, Investment Adviser Representative Published
-
Digital Estate Planning Guide: Get Your Digital Assets in Order
A digital estate plan lets your loved ones know what should happen to your email and social media accounts, photos and more after you’re gone.
By Justin Stivers, Esq. Published
-
10 Good Reasons to Revisit Your Will
Life changes often, so taking a good look at your will every three to five years can ensure everything from beneficiaries to changes in the law are up to date.
By Stefan Greenberg, CFP®, CFS, CLTC Published
-
What to Do When You Have More Retirement Income Than You Need
These three options can help you allocate extra income in ways that don’t push you into a higher tax bracket or trigger extra taxes.
By Stephen B. Dunbar III, JD, CLU Published
-
Opportunity Zone Investing Still Hot Despite Looming Sunset
Tax incentives and rise of niche fund strategies make the qualified opportunity zone program an attractive way to grow tax-free wealth.
By Daniel Goodwin Published
-
How Tax-Loss Harvesting Helps to Lower Your Tax Bill
This fairly straightforward tax strategy may help you reduce your capital gains taxes, but beware of triggering the wash sale rule.
By Adam Frank Published