Cut RMDs & Taxes With A Qualified Longevity Annuity Contract? | QLACs 2026

$2,400 to $3,100 every month for life? Let's get to know a unique, not often-talked-about type of annuity that continues to guarantee top payouts right now and it may also help lower your required minimum distributions and taxes - see how much you might get every month for the rest of your life 👉 what is a QLAC (qualified longevity annuity contract) and who should buy a QLAC ?

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Let's talk about a unique, not often discussed type of annuity that continues to guarantee top payouts right now. And it may also help lower your required minimum distributions and taxes. Hello, Diamond Nestec members, Super Savers and Course fans. I hope you're healthy and well. Rates on many qualified longevity annuity contracts, QLACs, continue to be higher now than where they've been in a long time. And if long-term interest rates remain high at current levels at the time of this taping, so might CULAC rates, because as many of our Diamond Neste regulars know, annuity rates track interest rates. So with that in mind, here are the three topics I'll be covering in today's video. 1. What is a qualified longevity annuity contract, or QLAC, and how can you use it to reduce your RMDs and deferred taxes? 2. How much could a QLAC pay out monthly? And who might want to consider a CULAC? And three, when might a CULAC not be the right fit for you? And what are some key factors to keep an eye on? Let's dive in now, folks. What is a qualified longevity annuity contract, or QLAC, and how can you use it to reduce your RMDs and defer taxes? We've covered three types of annuities in detail in our previous videos. The first was a single premium immediate annuity, or SPIA. With a SPIA, you make a single and usually large upfront payment to the insurance company, and immediately or very shortly after a payment, the insurance company starts paying you a guaranteed monthly income for the rest of your life. The second type of annuity we covered was a multi-year guaranteed annuity or MIGA. A MIGA is a type of fixed deferred annuity. With a MIGA, you pay a lump sum premium to the insurance company at the beginning of the contract term. And this lump sum amount earns a guaranteed fixed interest rate for the specific term of the contract, typically ranging from 2 to 10 years. And at the end of the annuity contract term, but not before, you get paid out the principal plus interest, at which point you can either withdraw the full amount in cash, renew the contract, or convert it into another annuity product, such as a SPIA. The third type of annuity we covered was a fixed indexed annuity or FIA. Like a MIGA, a FIA is also a type of fixed deferred annuity, meaning that with a FIA, you also pay a lump sum premium to the insurance company at the beginning of the contract term. But unlike a MIGA with a FIA, the returns on this lump sum amount are generally linked to a market index, like the SP 500, up to a certain cap and or participation rate, while protecting against market losses, meaning that your principal and any amount that has been credited to your FIA account will be 100% downside protected. And at the end of the contract term, you get paid out the principal plus earnings. Here again, you can either withdraw the full amount in cash from your FIA, renew the contract, or convert it into a sphere for a guaranteed lifetime income stream. A fixed indexed annuity may be something to consider for those of you in our community who are worried about current stock market levels, but still want to keep a foot in the stock market without any loss of capital, without any loss of principal, in order to participate in any additional upside that may potentially come in the future. If you want to learn more about fias, I've linked this video in our annuity playlist below this video for your convenience. And today we'll cover a fourth type of annuity, a qualified longevity annuity contract, or QLAC. A CULAC is also a type of deferred annuity in the sense that you put a lump sum premium into a CULAC today that grows tax deferred over the term of the CULAC. And at the end of the contract term, you convert your CULAC into guaranteed monthly payments that should last for the rest of your life. A CULAC serves a different purpose than a SPIA, MIGA, or FIA though. A qualified longevity annuity contract or CULAC is designed to provide a guaranteed lifetime income starting later in retirement, up to age 85, and to defer required minimum distributions, RMDs, and taxes on part of your retirement savings. More on this shortly, there is generally no option for a lump sum payout with a QLAC. Here are the five most important things you need to know about QLACs. One, the lump sum premium that you pay up front to the insurance company for your qualified longevity annuity contract must come from your pre-tax retirement savings, meaning a qualified retirement account like a traditional IRA or 401k. You cannot use funds from a Roth account or a taxable savings or brokerage account to buy a QLAC. That's why it's called a qualified longevity annuity contract, because the money has to come from a qualified or pre-taxed retirement account. And this is how buying a QLAC allows you to defer RMDs and taxes on your retirement savings. The money that you pull out of your qualified retirement account to purchase the QLAC is excluded from your traditional IRA or 401k when calculating RMDs, which basically means a lower taxable income in your 70s or 80s. In fact, many older investors buy a QLAC exactly for the purpose of lowering their RMDs and deferring taxes. So let's walk through an example. Let's say that I have$1 million in my traditional IRA, my pre-tax IRA. I'm turning$73 this year and I have to start taking my RMDs now. If I pull out$210,000 from my$1 million IRA to purchase a QLAC, the IRS will only calculate my RMDs based on my remaining IRA balance of$790,000. And the lower RMDs may reduce my annual tax burden during my RMD years. So in a nutshell, when executed properly, I don't pay taxes when I buy my QLAC with pre-tax retirement savings. I have lower RMDs in my 70s and 80s. Plus, I don't pay taxes on interest earned inside the QLAC while it's growing. I will only start paying ordinary income tax when the insurance company begins sending me my monthly checks. 2. At the current time, the maximum you can invest in QLACs across all your accounts is$210,000. That's up from$200,000 in previous years, thanks to inflation adjustments. Now, there used to be an old rule limiting a QLAC to 25% of your pre-tax account balance, but this is gone. It was scrapped under the Secure 2.0 Act. So now it's just this flat cap of$210,000 plus whatever inflation adjustments will be made in the future, regardless of how big or small your pre-tax retirement savings are. The$210,000 QLAC investment limit applies across all your accounts, which also means that together with your spouse, you could potentially allocate up to$420,000 to QLACs as a couple, so long as both of you have your own qualified retirement accounts. 3. You need to pick a start date for when you want the fixed guaranteed monthly payments on your QLAC to begin. And this start date must be no later than the first day of the month following the month in which you turn age 85. So if I own a QLAC and I was born on September 15th, 1955, I would turn 85 on September 15, 2040, meaning that the latest possible date for the monthly lifetime CULAC payments to start would be October 1st, 2040. Now, I can start my QLAC payments before October 1st, 2040 if I want, but not later. This 85-year-old cap is non-negotiable as the IRS wants its taxes at some point. That said, some people choose the latest start date after they turn 85 because it creates a guaranteed lifetime income stream at a later age, further protecting against longevity risk and any medical and care costs that may rise with age. 4. You need to pick the start date for your payments when you purchase the QLAC. And the reason for this is because the insurance company uses that start date along with your age at the time of purchase, interest rate expectations, and other factors to calculate the fixed guaranteed monthly payments that you will receive in the future for the rest of your life. Some QLACs will allow a one-time change to the start date for your monthly payments, but this needs to be done before the first checks go out and is not a given for all CULACs. So if this is important to you, make sure to check that the option is included in your contract before you sign. 5. A qualified longevity annuity contract is generally irrevocable and non-cancelable after the so-called free look period. Most annuities will have a free look period between 10 and 30 days, during which time you can carefully review your contract once more and cancel without penalty, and a QLAC is no different. After the free look period, though, you're usually completely locked in, meaning you cannot cancel the contract, surrender it for cash, get a refund, change the payout terms, or transfer the funds back into your IRA, with the possible exception of the one-time change to the start date on your monthly lifetime payments that we just discussed. Some QLACs may have other exceptions, but if they do, any changes that you will be permitted to make will often come at a very high cost to you. So make sure you are 100% certain about your QLAC before the free look period expires. So, as you can see from this table here, a QLAC can offer distinct advantages under certain circumstances. It can help with lowering RMDs and deferring taxes in your 70s and early 80s. It creates a guaranteed lifetime income stream starting at a later age, further protecting you against longevity risk and medical and care costs that may rise with age. And if you choose a joint life option, it can protect your spouse as well. Also, for some retirees, knowing that they have QLAC payments that will kick in later in life gives them more confidence to spend and/or invest the rest of their portfolio in retirement, as well as the peace of mind that lets them sleep better at night and might even help with avoiding any rash reactions to the market fluctuations that they may almost inevitably see during their retirement. Now that you know what a QLAC is and how it works in principle, let's move on to the next section of today's discussion. How much could a CULAC pay out monthly? And who might want to consider a QLAC? So, here are some examples of the guaranteed monthly payments you could get on a$100,000 QLAC at the time of this taping, assuming that you purchase the CULAC at age 60 and that the first monthly payment starts at age 80. This column shows who we're talking about, and this column shows what the guaranteed monthly check for life might be. For a single female, the guaranteed monthly check for life might be around$2,800. For a single male, the guaranteed monthly check for life might be around$3,100. As we've talked about in our previous annuity videos, all else being equal, the guaranteed monthly checks for women tend to be lower than that for men because women tend to have a longer life expectancy than men. For a couple where both spouses are the same age, the guaranteed monthly check for life might be around$2,400. The payments here are even lower because the payout is guaranteed for as long as either spouse is alive. Do note that all these payouts here assume refund at death, meaning that your beneficiaries will receive any premium value that is left in the annuity when you pass away that has not been paid out. Also remember that these payouts that we've shown you here are for illustration purposes only. Your actual numbers may look similar or they may look completely different depending on your concrete circumstances and when you're watching this video. Your annuity rate and payout are not fixed until you sign your annuity contract. So now that we've covered how much a qualified longevity annuity contract could pay out under specific circumstances, let's talk about who might want to buy a QLAC. You may want to consider a QLAC if you check one or more of these boxes. You're a generally healthy retiree or pre-retiree in your 60s or early 70s. You know you have to take RMDs from your pre-tax or qualified retirement accounts, but you don't really need that money. You want to hedge against a super long lifespan. Even if you're someone with other reliable income streams like Social Security, a pension, or rental properties from your early retirement years, a QLAC gives you some extra insurance and peace of mind for the case that you live to 90, 95, or even 100 plus, which would be great by the way. Most of our Diamond Neste regulars who've purchased QLACs or who are considering them right now do check some, if not all three of these boxes. So if this sounds like you, shoot us an email at jenniferdiamondnestec.com so that we can connect you with our trusted annuity specialist. Because there is no cookie-cutter, one size fits all annuity solution. The generally irrevocable and non-cancelable nature of QLACs, as well as the tax nuances tied to QLACs, makes it even more important to be meticulous in this instance. Any QLAC you purchase should be customized to your individual circumstances, goals, and expectations and fit properly in your overall portfolio, regardless of size. So, with that in mind, let's move on now to the next section of today's discussion. When might a QLAC not be the right fit for you? And what are some key factors to keep an eye on? A QLAC may not be the right fit for you if you check one or more of these boxes. You do not have any funds in qualified retirement accounts. Remember the lump sum premium that you pay up front to the insurance company for your qualified longevity annuity contract must come from a qualified retirement account, meaning pre-taxed retirement savings, such as a traditional IRA or 401k. You cannot use money from a Roth account or taxable savings or brokerage account to buy a QLAC. So if you don't have any funds in a qualified retirement account, you can't buy a QLAC. You have money in your qualified retirement accounts, but you may need to or may want to take all your RMDs, whether that may be for ongoing expenses, healthcare and long-term care costs, emergencies, or any other purpose. In such an instance, you want the flexibility to access every dollar and may not want to tie up your money in something as illiquid as a QLAC. You're afraid that you might not live very long and or you have health issues that could shorten your life expectancy, such as heart disease or cancer, because the deferred payouts mean you might not collect much or anything at all from your QLAC. You're an aggressive investor who prefers the growth potential of stocks, real estate, or even some higher risk bonds over fixed annuity returns. A QLAC is generally considered more suitable for a conservative investor. You want to maximize the estate for your heirs. CULACs prioritize your lifetime financial security over legacy building. Or in other words, a QLAC will generally not pay out anything to your estate or heirs. That said, if these last two boxes here are your primary concerns, do keep in mind that it all depends on how you use a QLAC in your overall financial plan. Plus, you may also be able to tailor a QLAC, like most other annuity products, to your specific needs. So, for example, if you're an aggressive investor, you could earmark a part of your traditional IRA or 401k to a QLAC to make sure you have a sufficiently large guaranteed income later in retirement. And with that covered, you may have the option to be even more aggressive with the rest of your portfolio. Or you could add certain extra provisions to your QLAC to tailor it specifically to your needs. Let's look at three such riders as the insurance world calls such add-on provisions. First, a return of premium or ROP for your heirs. This guarantees that if you die before the payouts start, your beneficiaries will receive the full amount of your original premium. And if you die after income payments begin, your beneficiaries will receive the unused portion of your original premium. This removes the use it or lose it fear and ensures that your investment isn't lost entirely if you die early. The trade-off here is that your fixed guaranteed monthly lifetime payments will be lower for a QLAC with this rider than one without it. Second, a joint life or survivor income rider. I touched upon this briefly in the previous section of today's video. A joint life or survivor income rider extends lifetime income payments to two people, typically you and a spouse. Payments continue for as long as either one is alive and ensures that the surviving spouse is financially protected. The trade-off, also as we showed you earlier, is that payouts on a QLAC with a joint life or survivor income rider will be lower than a single life QLAC because the insurer expects to pay for a longer period of time. And the third is a cost of living adjustment or cola rider. CULACs typically do not offer inflation protection. The guaranteed monthly payouts are fixed for life, so inflation will eat away at those regular QLAC checks. There are some QLACs that offer inflation adjustments at certain intervals, but these are usually not large enough to keep up with the actual reported inflation numbers. So if inflation keeps you up at night, a cola rider may be something to consider. A cola rider typically increases your future monthly payments by a fixed percentage, often 1% to 3% annually after payments begin to help offset inflation. The trade-off here is that your initial payments will usually start off lower, but they will grow over time. Now, all of these riders are optional, but personally, if I were to buy a QLAC, I would seriously consider these first two riders. The return of premium rider, because I would rather pay a little bit more to make sure that my hard-earned premiums go to my heirs and not the insurance company, even if I died an earlier death than expected. And the joint life or survivor income rider, because well, I'd want to make sure that Marcus is financially protected as best as possible if I were to pass before him. Now, this cola rider is a bit more complex. As I mentioned, some QLACs offer a bit of inflation adjustment at certain levels without any additional costs. If the inflation adjustment was of no additional cost to me, I would take it because, well, it's free. If I had to pay for the cola rider, or if I had to accept a lower guaranteed fixed monthly payment in the earlier years, which economically speaking has the same effect, I would not go for a cola rider. Historically, and on average, probably still now, cola riders are just too expensive, at least in my mind. I would buy a Culak for what it's designed to do, to lower my RMDs and to ensure a fixed, guaranteed lifelong income in my late 70s and early 80s. Basically, to establish a floor for my income. I would not buy a QLAC for inflation protection. In my mind, there are other and potentially more efficient and effective ways to protect myself against inflation in my older years. For example, by allocating a portion of my fixed income portfolio to Treasury Inflation Protected Securities, tips, and I bonds, or by leaving the equity part of my portfolio in low-cost index funds that are suited to my risk return profile. But as I always say, everyone's financial journey is different. CULAX, like all other types of annuities, are not for everyone, but for generally conservative investors who are looking to lower their RMDs, defer taxes, and lock in a guaranteed lifelong income stream later in life. There's no other product out there like them, especially with how attractive payout rates are currently. That said, your QLAC should be specifically tailored to your needs, from how much you want to contribute initially and when the payouts start, to whether you want to add your spouse or include some of these other riders that we've just talked about. So email us at jennifordiamondestic.com so that we can connect you with our trusted annuity specialists. And for those of you who are interested in other types of annuities, especially given where rates currently stand, check out our annuities playlist here where we dive deeper into single premium immediate annuities, multi-year guaranteed annuities, and fixed indexed annuities. Alright, Diamond Nestic members, Super Savers and Course fans, I hope you enjoyed today's video and learned something new. And see you again very soon with more brand new wealth-building content for your financial journey.