retirement

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.

Kim Franke-Folstad contributed to this article.

About the Author

Carl Zeidler, CFP, MSFS

Director of Financial Planning, Wall Street Financial Group, Inc.

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.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
What Is the Social Security COLA?
retirement

What Is the Social Security COLA?

For the average recipient, the 2021 monthly increase doesn't even cover a fill-up at the gas station — but it beats nothing.
July 14, 2021
11 Best Healthcare Stocks for the Rest of 2021
healthcare stocks

11 Best Healthcare Stocks for the Rest of 2021

The 2020s could be the decade of healthcare stocks. Here are 10 companies and one ETF to watch not just for the remainder of this year, but well beyon…
July 13, 2021

Recommended

Know Your Rights in Debt Collection
Financial Planning

Know Your Rights in Debt Collection

A wave of post-pandemic debt collection is coming. Here's how to dispute a debt and protect your assets.
July 23, 2021
The Psychology Behind Your Worst Investment Decisions
investing

The Psychology Behind Your Worst Investment Decisions

We can torpedo our portfolios without even realizing it. Avoiding these seven traps will allow you to make rational investments.
July 22, 2021
Taxes on Unemployment Benefits: A State-by-State Guide
state tax

Taxes on Unemployment Benefits: A State-by-State Guide

Don't be surprised by an unexpected state tax bill on your unemployment benefits. Know where unemployment compensation is taxable and where it isn't.
July 22, 2021
25 Best Kirkland Products You Should Buy at Costco
Smart Buying

25 Best Kirkland Products You Should Buy at Costco

Many of warehouse club Costco's store-branded Kirkland Signature items get high marks for quality and value. Check out our picks.
July 21, 2021