Qualified Longevity Annuity Contract Frequently Ask Questions

Effective July 2, 2014, the Internal Revenue Service allows deferred income annuities / longevity annuities to be made available as Qualified Longevity Annuity Contracts (QLACs), which will be excluded from required minimum distribution (RMD) calculations when certain conditions are met.

Q: What types of contracts are eligible to be classified as QLAC?

A: Eligibility is restricted to a longevity annuity issued under an employer- sponsored qualified plan (401(a), 401(k), 403 (b), government 457(b) plan) or a traditional IRAs.

Q: Are Roth IRAs or inherited IRAs eligible to be classified as a QLAC?

A: No. Roth IRA do not have required minimum distribution (RMD) requirements.

Q: How will the premium limits of 25% per account and $125,000 work?

A: In 2014 premiums are limited to the lesser of $125,000 or 25% of the participant’s qualified account values. That increase to $130,000 in early 2018. The dollar limit applies across all plans and IRAs collectively, while the percentage limit applies to each plan separately and to IRAs on an aggregated basis. If the client exceeds premium limits, IRS penalties may apply.

Q: What account value is the 25% IRA limit based on?

A: The 25% limit is based on the value of the account as of December 31 of the year prior to purchasing the QLAC for IRAs.

Q: What is the maximum or oldest QLAC purchase age for annuitant and joint annuitant?

A: Annuitants cannot be older than age 83 usually with some company exceptions. Income must start latest age 85.

Q: Is there a minimum purchase age restriction?

A: Most companies require age 18 with no longer than a 40 year deferral of income start date from purchase.

Q: Can I have more than one QLAC or longevity income annuity?

A: Yes. There are advantages to splitting QLACs or longevity annuities with different insurance companies and different income start dates or features.

Q: What death benefit options are available with a QLAC?

A: Before income starts death benefits and after income start death benefits are the two main options. Options are return of premium/deposit (ROP) or no death benefit before income starts. Return of deposit or premium plus interest is not available. Payout options are limited to single or joint life only, and single or joint life with cash refund after income starts. Death benefit options must be selected at application.

Q: Are annual payment increase, or cost of living adjustments (COLA) options available?

A: Yes, CPI-U Index, 1% - 56% simple, or compounded rates after income start date. Must be chosen at application.

Q: If it is a joint payout, and the owner/annuitant dies prior to the annuity date, is the joint annuitant subject to the traditional RMD rules, or do they get the advantage of the later income start date?

A: They get the advantage of the later income start date.

Q: Can dollars in an IRA that has begun distributions due to existing RMD rules (client is over 70½) be exchanged into a QLAC?

A: Yes, most annuity carriers allow deposits until the age of 83 years old.

Q: Can a beneficiary roll over any refund received as a result of the annuitant’s premature death?

A: No. Refunded dollars are always treated as required minimum distribution (RMD) and not eligible for rollovers.

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