Can I buy a QLAC and have my joint owner be my 30 year old son?

[compass19]

I'm 69, recently widowed. Can I buy a QLAC where my joint owner is my 30 year old son? I know my payments from it would be less by doing so with someone so young as my joint owner, but I don't even know if one can do that, or does it have to be a spouse?
I'm thinking of doing this as a way to guarantee income for a now 30 year old son after I pass away, as opposed to buying term life ins. Would set it up as a joint QLAC, which I would start to take at age 80, since I don't need the income. That way, he would get x amount per month until he died, as opposed to a lump sum of what's left when I die.
Thinking of doing this partly bc I only have term life ins for another 5 years, and if I wanted to renew that when it expires, it would be costly. Also, I just think it would be better for him to get some amount of a monthly payment (looks like it would be about $2000/month) rather than a lump sum.
Any thoughts?

[kd2008]

https://www.immediateannuities.com/qlac ... -contract/

Go to comments for answers. Joint annuitants are allowed.

https://www.thetaxadviser.com/issues/20 ... nov14.html

Additional info, requirements and examples.

Get an actual quote, but do not buy immediately at

https://www.blueprintincome.com/income- ... y-contract?

[Stinky]

I'm 69, recently widowed. Can I buy a QLAC where my joint owner is my 30 year old son? I know my payments from it would be less by doing so with someone so young as my joint owner, but I don't even know if one can do that, or does it have to be a spouse?
I'm thinking of doing this as a way to guarantee income for a now 30 year old son after I pass away, as opposed to buying term life ins. Would set it up as a joint QLAC, which I would start to take at age 80, since I don't need the income. That way, he would get x amount per month until he died, as opposed to a lump sum of what's left when I die.
Thinking of doing this partly bc I only have term life ins for another 5 years, and if I wanted to renew that when it expires, it would be costly. Also, I just think it would be better for him to get some amount of a monthly payment (looks like it would be about $2000/month) rather than a lump sum.
Any thoughts?

I found conflicting information on line, with some sources suggesting yes and others suggesting no.

I don’t know the answer myself.

Unless someone more knowledgeable chimes in, I suggest that you call an annuity agent to find out. (And then report back on this thread, because I’m interested in the answer.)

[pesteele]

I don't think this is a road you want to go down. An annuity issuer is going to calculate the monthly pay out on the joint life expectancy of BOTH annuitants, which in your case involves a 30 year old who may easily live another 50-60 years. The dollar amount would be vanishingly small. Hopefully whoever you are working with would reject this as a suitable investment for both of you.

Have the QLAC issued on your life expectancy only as a 100% refund to your estate and name your son as the beneficiary. If you put in $100k and die after receiving $25k in payouts, your son gets the remaining $75k back.

Be careful here as you seem to have limited information about how the annuity process works and there are lots of salespeople who will size you up, turn you upside down and shake your pockets empty. Blue Print is reputable and ethical and a good place to start. We wound up going through Fidelity and purchasing a policy from an A+ company such as New York Life or Guardian.

Annuities can be a useful tool if used carefully but can slice off your limbs if you aren't careful.

[Stinky]

Have the QLAC issued on your life expectancy only as a 100% refund to your estate and name your son as the beneficiary. If you put in $100k and die after receiving $25k in payouts, your son gets the remaining $75k back.

OP says that he wants a monthly income for his son.

Not a lump sum.

[Alan S.]

I'm 69, recently widowed. Can I buy a QLAC where my joint owner is my 30 year old son? I know my payments from it would be less by doing so with someone so young as my joint owner, but I don't even know if one can do that, or does it have to be a spouse?
I'm thinking of doing this as a way to guarantee income for a now 30 year old son after I pass away, as opposed to buying term life ins. Would set it up as a joint QLAC, which I would start to take at age 80, since I don't need the income. That way, he would get x amount per month until he died, as opposed to a lump sum of what's left when I die.
Thinking of doing this partly bc I only have term life ins for another 5 years, and if I wanted to renew that when it expires, it would be costly. Also, I just think it would be better for him to get some amount of a monthly payment (looks like it would be about $2000/month) rather than a lump sum.
Any thoughts?

Perhaps you are not using retirement account funds, but because QLACs can only be issued in a qualified retirement plan or an IRA, the only owner will be the plan participant (you). The QLAC limit has been increased to 200k with future inflation adjustments by Sec 202 of Secure 2.0. Your son would be the beneficiary of the IRA QLAC, which would be a separate IRA annuity and would exempt that contract from RMDs until the commencement date for distributions. Therefore, with an IRA QLAC your taxable income would be reduced from age 73 to 80, but then proportionately increased when IRA QLAC distributions commence.

If the IRA balance is substantial, the Secure Act 10 year rule would require your son to drain the inherited QLAC in 10 years, which limits his tax deferral.

Is there a reason that you want to limit his monthly income with an annuity? He will probably be over 40 when he inherits.

[Joylush]

Did anyone get more clarity on this question? I’m thinking of doing the exact same thing.

From what I can tell you can purchase it and have it be a joint life contract just not sure if it must be a spouse. I know you can purchase any other immediate annuity and add a younger person as a joint annuitant, but not sure if that applies here. It also looks like the only death benefit is a return of unused premium. If this is the case it doesn’t seem very attractive.

[Dottie57]

Did anyone get more clarity on this question? I’m thinking of doing the exact same thing.

From what I can tell you can purchase it and have it be a joint life contract just not sure if it must be a spouse. I know you can purchase any other immediate annuity and add a younger person as a joint annuitant, but not sure if that applies here. It also looks like the only death benefit is a return of unused premium. If this is the case it doesn’t seem very attractive.

I would think a 30 yo in the contact would really lessen the payouts.

[Joylush]

It does, it cuts them in half. But that’s because the payout time period s a whole lot longer. I don’t need the money but it would be nice for them to have a guaranteed income stream for the rest of their life.

[123]

...I don’t need the money but it would be nice for them to have a guaranteed income stream for the rest of their life.

The risk of providing income to a beneficiary with an annuity is that they may sell the income stream to a company like J.G. Wentworth and receive a small lump sum while Wentworth, or another investor, receives the annuity payments. https://www.youtube.com/watch?v=pdPM6j1Q4sg

[Alan S.]

...I don’t need the money but it would be nice for them to have a guaranteed income stream for the rest of their life.

The risk of providing income to a beneficiary with an annuity is that they may sell the income stream to a company like J.G. Wentworth and receive a small lump sum while Wentworth, or another investor, receives the annuity payments. https://www.youtube.com/watch?v=pdPM6j1Q4sg

Not with a QLAC. See the following QLAC requirement copied from the IRS QLAC Regs;

After the required beginning date, the contract does not make available any commutation benefit, cash surrender right, or other similar feature (other than a right to rescind the contract within a period not exceeding 90 days from the date of purchase);

As for naming a younger non spouse beneficiary, the IRS QLAC Regs are designed to prevent the expected RMD revenue from being deferred and distributed over much longer periods of time.

(ii) Surviving spouse is not sole beneficiary —

(A) Death on or after annuity starting date. If the employee dies on or after the annuity starting date for the contract and the employee's surviving spouse is not the sole beneficiary under the contract then, except as provided in paragraph (q)(3)(iv) of this section, the only benefit permitted to be paid after the employee's death is a life annuity payable to the designated beneficiary under which the periodic annuity payment does not exceed the applicable percentage (determined under paragraph (q)(3)(iii) of this section) of the periodic annuity payment that is payable to the employee.

Following is the chart indicating the reduced payment to the non spouse beneficiary due to age difference of the younger beneficiary:

https://www.ecfr.gov/current/title-26/c ... 9)-6(q)(3)

[Stinky]

As for naming a younger non spouse beneficiary, the IRS QLAC Regs are designed to prevent the expected RMD revenue from being deferred and distributed over much longer periods of time.

(ii) Surviving spouse is not sole beneficiary —

(A) Death on or after annuity starting date. If the employee dies on or after the annuity starting date for the contract and the employee's surviving spouse is not the sole beneficiary under the contract then, except as provided in paragraph (q)(3)(iv) of this section, the only benefit permitted to be paid after the employee's death is a life annuity payable to the designated beneficiary under which the periodic annuity payment does not exceed the applicable percentage (determined under paragraph (q)(3)(iii) of this section) of the periodic annuity payment that is payable to the employee.

Following is the chart indicating the reduced payment to the non spouse beneficiary due to age difference of the younger beneficiary:

https://www.ecfr.gov/current/title-26/c ... 9)-6(q)(3)

So, using the 39 year age difference between mom and son in OP’s post, it sounds like the son’s benefit would be limited to just 54% of mom’s benefit, if I’m interpreting the table correctly.

That’s a pretty severe cutback.

The “real” value of the benefit to OP’s son would be further diminished by inflation. At age 30, it’s quite possible he’ll live for 50 more years. If we have inflation at 3% per year, prices will approximately quadruple over the next 50 years. That is, the item that costs $100 today will cost about $400 in 50 years.

[Alan S.]

As for naming a younger non spouse beneficiary, the IRS QLAC Regs are designed to prevent the expected RMD revenue from being deferred and distributed over much longer periods of time.



Following is the chart indicating the reduced payment to the non spouse beneficiary due to age difference of the younger beneficiary:

https://www.ecfr.gov/current/title-26/c ... 9)-6(q)(3)

So, using the 39 year age difference between mom and son in OP’s post, it sounds like the son’s benefit would be limited to just 54% of mom’s benefit, if I’m interpreting the table correctly.

That’s a pretty severe cutback.

The “real” value of the benefit to OP’s son would be further diminished by inflation. At age 30, it’s quite possible he’ll live for 50 more years. If we have inflation at 3% per year, prices will approximately quadruple over the next 50 years. That is, the item that costs $100 today will cost about $400 in 50 years.

I think it's worse than 54% - there is another chart (Table 6) toward the end of these annuity RMD regs exclusive to QLACs in which the 39 year age difference reduces the payout to the beneficiary to only 20%.

I assume the difference between the two charts relates to the 10-13 delay of RMDs in QLACs.
Shouldn't this large reduction be offset to some degree by a higher payout while the participant is still living?

[Stinky]

So, using the 39 year age difference between mom and son in OP’s post, it sounds like the son’s benefit would be limited to just 54% of mom’s benefit, if I’m interpreting the table correctly.

That’s a pretty severe cutback.

The “real” value of the benefit to OP’s son would be further diminished by inflation. At age 30, it’s quite possible he’ll live for 50 more years. If we have inflation at 3% per year, prices will approximately quadruple over the next 50 years. That is, the item that costs $100 today will cost about $400 in 50 years.

I think it's worse than 54% - there is another chart (Table 6) toward the end of these annuity RMD regs exclusive to QLACs in which the 39 year age difference reduces the payout to the beneficiary to only 20%.

I assume the difference between the two charts relates to the 10-13 delay of RMDs in QLACs.

Shouldn't this large reduction be offset to some degree by a higher payout while the participant is still living?

Such a huge reduction in monthly payments required when the contingent beneficiary is decades younger than the annuitant seems to make this a less-than-optimal way for a parent to provide for a “lifetime income” for a child.

I hope that OP and “joylush”, both of whom posted in this thread that they were thinking of buying QLACs with a child as a beneficiary, are taking note of this cutback in payments.

[birdbard]

in looking at qlacs previously - you can't start them until 73 at the youngest.

So if you go joint with a younger person - if you die when they are 50 will they have to wait until 73 then?

[RetiredCSProf]

Distributions from the QLAC would be considered ordinary income and, thus, taxable. If feeling charitable, would a Charitable Remainder Trust be another option? -- the distributions would still be considered as ordinary income and taxable.

I am "reading between the lines" here and thinking about various reasons why a parent would want to ensure lifetime annual income for a child, such as, the child has special needs, has limited earning potential, struggles with a budget, or the parent has a bucket-load of money and worries about the temptation for the child to blow it all at once on a luxury item (such as a round-trip ticket to Mars).

If the son is disabled, consider setting up an ABLE account.

Loss of the stretch IRA was a bummer -- but there may be other avenues to explore. I am gifting my 27-year old son with funds to cover his annual Roth IRA contribution. He has modest income from a part-time job and hopes to expand his career opportunities in the next couple years. Even if he gets a good job, pensions are disappearing.

[Alan S.]

in looking at qlacs previously - you can't start them until 73 at the youngest.

So if you go joint with a younger person - if you die when they are 50 will they have to wait until 73 then?

No.
They must start receiving life annuity distributions in the year after participant's death. But if the participant purchased a return of premium (ROP) option, the beneficiary will receive a lump sum distribution of the remaining balance between the premium and benefits already paid out in the year following participant's death.

My understanding is that the participant must choose the ROP or life annuity option when the QLAC is purchased and cannot choose both. As a result, the beneficiary will not be allowed to start life expectancy payouts and then request the ROP.