Qualified Longevity Annuity Contracts (QLACs) are a type of annuity specifically designed for retirement planning that allows individuals to use a portion of their tax-deferred retirement accounts to purchase an annuity that begins payments at an advanced age, typically no later than age 85.
QLACs provide a guaranteed income stream for retirees, helping to mitigate the risk of outliving their savings. They are excluded from the required minimum distribution (RMD) calculations until the annuity payments begin, which can lead to tax advantages by allowing retirees to defer taxable withdrawals for a longer period.
For example, if an individual allocates a maximum of $135,000 (as of 2023) from their traditional IRA to purchase a QLAC, they can postpone taxable distributions until the income begins, which can help manage their taxable income and retirement cash flow more effectively.
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