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How does a QLAC purchase reduce RMD?

A Required Minimum Distribution is calculated based on the fund account balance after subtracting the QLAC premium payment.

Even though the QLAC is acquired with pre-tax dollars, the IRS does not treat the purchase as a taxable event – even though the QLAC asset is excluded from an IRA fund balance. In other words, a Required Minimum Distribution is calculated based on the fund account balance after subtracting the QLAC premium payment. It is important to note that each year’s Required Minimum Distribution is computed using the fund value at December 31st of the past year.  Accordingly, a QLAC purchase must precede the prior year end date in order to reduce a Required Minimum Distribution in the current year. QLACs can be purchased years after or before age 72.  The more years between the purchase date and annuity start date, the greater the benefit for each premium dollar.  Click here for a short video with a case study of an investor, Peter, who purchases a QLAC.   

Ron Ryan

Ron Ryan is the author of this solution

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Updated on Wed, 29 Jan 2020

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