An investor named Peter has two IRA accounts. Both are standard IRAs and neither is a Roth IRA. The IRAs have assets totaling $500,000 as of 12/31 on the year that Peter turns 70 and a half.
The required minimum distribution given an IRS calculated average life expectancy of 27.4 years is $18,248. That's how much Peter has to take out of his IRA without incurring the penalty. Peter's birthday is in early June and Peter is thinking about what to do with his money. Peter is healthy and still working but he's worried about outliving is assets in his later years.
He learns that if he uses IRA funds to purchase a QLAC in the maximum allowable amount of $125,000 and sets the payments to start at age 85 Peter can reduce the amount on which he has to pay RMDs to $375,000 instead of the $500,000 that was required before he made his QLAC investment. Now, instead of $18,248 has to take out of his IRA account only $13,686.
The new RMD calculation allows $4,562 to stay in his retirement accounts. Future reductions will be similar but will vary due to declining life expectancy and fluctuations in asset returns.
If Peter dies prematurely his estate receives a return on the premium paid from the qualifying QLAC annuity investment. If Peter lives past age 85, he'll receive annuity payments until he dies.
With his social security income his QLAC payments, and other savings, Peter feels that he can comfortably live to age 100 or older.
Learn whether a QLAC investment is right for you by exploring the materials and links on QLACguru's website or by calling us at the number on your screen.
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Notice: The foregoing video and examples do not portray any one person’s situation. The dramatizations were prepared by the Company to introduce viewers to a new financial product, a Qualified Longevity Annuity Contract. Individual circumstances of a viewer are likely to vary from the examples in the videos. The videos are not tax or legal advice. The financial information, and calculations depicted in these videos are supplied from sources we believe to be reliable. However, we are unable to guarantee their accuracy. These materials are not intended to replace the viewer’s legal, tax and accounting advisors. Any viewer should seek advice from his or her qualified advisors prior to entering into a QLAC purchase. The Company accepts no responsibility for any outcome arising from a QLAC purchase or a failure to make a QLAC purchase. This material is not intended to be used, nor can it be used by any taxpayer, for the purpose of avoiding U.S. federal, state, or local tax penalties.