QLAC and RMD

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ralph124cf
Posts: 1958
Joined: Tue Apr 01, 2014 11:41 am

QLAC and RMD

Post by ralph124cf » Thu Aug 09, 2018 9:46 am

I am considering a QLAC (Qualified Longevity Annuity Contract) for DW, who will turn 70.5 next year. We are considering a start date of age 75. She is currently 69.5, healthy, and the women in her family tend to live to approximately 100. I am using 105 as a planning number.

First question: If we buy the QLAC within her IRA next year, for $100,000, will the $100,000 be counted for RMD purposes in 2019? That is, if her IRA balance on 01/01/2019 is $500k, and then $100k is transferred into the QLAC, does she have to take the RMD based on the $500k, or can it be based on $400k?

I am trying to do this at Fidelity. I see that Fidelity has Longevity annuities with fixed inflation adjustments available. I am trying to get quotes WITHOUT talking to a salesman, but I am unable to find the part of their website that would let me do this. Does anybody here know how to get this information?

Ralph

Silk McCue
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Joined: Thu Feb 25, 2016 7:11 pm

Re: QLAC and RMD

Post by Silk McCue » Thu Aug 09, 2018 10:23 am

I cannot find the definitive words regarding your RMD question. However logic dictates that the $100k funding of the QLAC is moving funds from one tax deferred account to another and thus results in no funds being withdrawn into a taxable status. Therefore no RMD could be satisfied by doing so in 2019. The amount of the RMD is determined by the account balances on December 31, 2018 for 2019, not January 1st to be clear. If you funded the QLAC in December 2018 so that it is fully completed before the 31st the RMD amount would be based upon the remaining balance of say $400k at the end of the year and not $500k.

I am not a QLAC aficionado but with family longevity of 100 I would think that a start date of at least 80-85 would be more appropriate since the goal is funding a long life. From what you have shared I don't expect she will need the funds at age 75 and thus will not receive at the funds during a period when she would most likely need them. You may have very good reasons for your choice but I wanted to share my perspective.

Cheers

ResearchMed
Posts: 6849
Joined: Fri Dec 26, 2008 11:25 pm

Re: QLAC and RMD

Post by ResearchMed » Thu Aug 09, 2018 11:24 am

ralph124cf wrote:
Thu Aug 09, 2018 9:46 am
I am considering a QLAC (Qualified Longevity Annuity Contract) for DW, who will turn 70.5 next year. We are considering a start date of age 75. She is currently 69.5, healthy, and the women in her family tend to live to approximately 100. I am using 105 as a planning number.

First question: If we buy the QLAC within her IRA next year, for $100,000, will the $100,000 be counted for RMD purposes in 2019? That is, if her IRA balance on 01/01/2019 is $500k, and then $100k is transferred into the QLAC, does she have to take the RMD based on the $500k, or can it be based on $400k?

I am trying to do this at Fidelity. I see that Fidelity has Longevity annuities with fixed inflation adjustments available. I am trying to get quotes WITHOUT talking to a salesman, but I am unable to find the part of their website that would let me do this. Does anybody here know how to get this information?

Ralph
I thought (no expert here) that RMD's are based upon the END OF PREVIOUS YEAR balance, so the date on the first of the year should be irrelevant... IF I'm correct.

RM
This signature is a placebo. You are in the control group.

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HueyLD
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Joined: Mon Jan 14, 2008 10:30 am

Re: QLAC and RMD

Post by HueyLD » Thu Aug 09, 2018 11:30 am

Ralph,

If she wants to delay the RMD on $100k, she needs to purchase a QLAC contract by 12/31/2018 because she will turn 70 1/2 in 2019 and the RMD calculation for year 2019 will be based on her combined IRA balance at 12/31/2018.

There are multiple limits and factors to consider. Here are three very I formative links for your reference.

https://www.irs.gov/pub/irs-pdf/i1098q.pdf

https://www.law.cornell.edu/cfr/text/26 ... 9%289%29-6

https://www.kitces.com/blog/why-a-qlac- ... bligation/

And I am not surprised that you may need to talk to an annuity salesperson at Fidelity before you can even get a quote.

Gill
Posts: 4451
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Location: Florida

Re: QLAC and RMD

Post by Gill » Thu Aug 09, 2018 11:44 am

Purchase the QLAC in 2018 to remove it from the balance used to calculate the 2019 RMD. Also agree, deferral to age 75 doesn't make much sense. I'd suggest age 85 to get the maximum discount and maximum distribution at age 85.
Gill

jalbert
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Re: QLAC and RMD

Post by jalbert » Thu Aug 09, 2018 12:41 pm

Not disputing that delaying to age 85 is best, but I think it depends on where one’s marginal income lives within a given tax bracket. Delaying to 85 delays the RMDs for longer, but concentrates the income into fewer total years. This could move some of the income into a higher tax bracket. On the other hand, it continues deferring tax on the funds that deferred into a QLAC, increasing the level of deferred growth.
Index fund investor since 1987.

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HueyLD
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Re: QLAC and RMD

Post by HueyLD » Thu Aug 09, 2018 12:45 pm

jalbert wrote:
Thu Aug 09, 2018 12:41 pm
Not disputing that delaying to age 85 is best, but I think it depends on where one’s marginal income lives within a given tax bracket. Delaying to 85 delays the RMDs for longer, but concentrates the income into fewer total years. This could move some of the income into a higher tax bracket. On the other hand, it continues deferring tax on the funds that deferred into a QLAC, increasing the level of deferred growth.
+1. Kitces’ blog has a section specifically addressing this issue.

RetiredCSProf
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Joined: Tue Feb 28, 2017 4:59 pm

Re: QLAC and RMD

Post by RetiredCSProf » Thu Aug 09, 2018 2:43 pm

I considered purchasing $100K in a QLAC before I started taking RMDs; instead, I decided to convert $100K from my tax-deffered IRAs to Roth IRAs. The QLAC does not avoid RMDs, but extends out the time. Once the money is placed into a QLAC, there's no going backward. The Roth conversion allowed me to continue managing my investment, rather than turning it over to an insurance company.

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