qualifying longevity annuity contracts (QLAC) And RMDs.....

[Rukh O'Rorke]

I don't think a lot of you saw something minnesotapaintlady attached in my thread "Question for those already retired......"

am.jpmorgan.com/content/dam/jpm-am-aem/global/en/insights/retirement-insights/guide-to-retirement-us.pdf

Lots of super good information. A lot of it we savvy folks here are already up on, but there were some surprising tidbits! Of most interest to me is this:

Enhance qualifying longevity annuity contracts (QLAC) – Lifetime income

starting late in life may help fund

possible long-term care needs


Allows up to $200,000 to be used to purchase a

QLAC and delay required minimum distribution as

late as age 85 when annuity payments commence

So if I am reading this right, you can take 200k out of your IRA to buy an annuity without paying taxes on the withdrawal - is this correct?

I've been trying to get a basic quote on this but I haven't found anything that gives you a general quote based on age, gender, and age when you plan to start the annuity. But this seems to be exactly what I may need! both to drain quite a bit out o the 401k rollovers without paying taxes, and having some piece of guanteed income.

While a lot of the writing points to a much older age to start collecting, I would like to use it to ease SORRs. I'm planning on taking soc sec at 70 to maximize payments. If I retire with 3 years of cash/cash equivalents, I was thinking to get a QLAC to start after those 3 years are over to provide monthly income between when my cash reserves run out in a down market, and then I will have some guanteed income between then and when soc sec kicks in.

Obviously the payment will be lower to have it kick in at 64/65/66, rather than 85, but taking money out of the market for a delayed annuity 20 years away - the market would tounce that significantly 99.5% of the time! But I may be looking at 5 or more years of drawing from stocks in a down market. If the market is doing ok, I will not spend down all the cash the first 3 years. Maybe do the market up to 67 then do the last 3 years until soc sec and at 70 go 100% stocks with soc sec.

Another thought is that by 70, I may just be able to squeek by on only the social security and the QLAC payment for basics. Maybe! but looking at soc sec projection, would be difficult to live on that alone.

[Rukh O'Rorke]

So questions!

Am I correct the 200k withdrawal is tax free?

Did you all know about this annuity option?

Are you considering it?

Any calculators where I can get an idea of potential payments out of the 200k at various ages?

[Rukh O'Rorke]

also!

if it is specifically mentioning longevity, can I get it to start before 70??

[jerseygirl]

Getting money out of a tIRA tax free would be great!

[pulmonarymd]

You are allowed to take money out of a 401K to fund an annuity, as long as it is done as a rollo over like you would do with any roll over. Yes, it is tax free. There are all kinds of annuity products you can use. You can also do it to fund LTC insurance.

[Rukh O'Rorke]

www.kiplinger.com/retirement/qlac-secure-act-gives-this-annuity-a-boost


this has some interesting info

[tallguy]

To be clear, it is not tax-free.  It is tax-deferred.  The income from the annuity is taxed at regular income tax rates when received.  You can transfer the money to the QLAC without paying tax, but that tax will ultimately be paid later.  

No, I would not consider it.  I would never need to, for one, but I would not want to give up control of the money until the payments start.  I prefer the flexibility of doing what I want when I want.  I would also not want to be tied to another fixed payment whether I need it or not.  An RMD is bad enough, but I have been reducing those future withdrawals by doing Roth conversions.  My Roth IRA balances are now higher than my traditional IRA balances, and I will continue to convert more as long as I can until RMDs start.  If I am trying to control my income and have to take a SS payment + an RMD + an annuity payment?  If I even live that long?  No thanks.  

[Rukh O'Rorke]

www.blueprintincome.com/resources/education/income-annuities


this has some comparisons about different kind of annuities about midpage. The earliest age for QLAC is 73, so wouldn't help with SORR before takins social security, but I am still considering....and maybe a spia for sorr...still tbd!

[Rukh O'Rorke]

Jun 29, 2024 17:23:56 GMT -5 tallguy said:

To be clear, it is not tax-free.  It is tax-deferred.  The income from the annuity is taxed at regular income tax rates when received.  You can transfer the money to the QLAC without paying tax, but that tax will ultimately be paid later.  

I'm very confused as to why on earth you think anyone didn't know this? The point is transferring it out of the 401k rollover without paying income taxes on 200k - not that you get to buy yourself a tax-free income stream? Like anyone would not do that if it was available!

[Rukh O'Rorke]

 I was also ble to get basic quotes from here too:

www.blueprintincome.com

without having to give all my info!

[tallguy]

Jun 29, 2024 18:07:04 GMT -5 Rukh O'Rorke said:

Jun 29, 2024 17:23:56 GMT -5 tallguy said:

To be clear, it is not tax-free.  It is tax-deferred.  The income from the annuity is taxed at regular income tax rates when received.  You can transfer the money to the QLAC without paying tax, but that tax will ultimately be paid later.  

I'm very confused as to why on earth you think anyone didn't know this? The point is transferring it out of the 401k rollover without paying income taxes on 200k - not that you get to buy yourself a tax-free income stream? Like anyone would not do that if it was available!

Because language matters.  Because there are people who don't know, and if the language used is imprecise they can be led to an incorrect conclusion.  It is more important to not give people bad information than it is to give them good information.

[Rukh O'Rorke]

Jun 29, 2024 18:19:56 GMT -5 tallguy said:

Jun 29, 2024 18:07:04 GMT -5 Rukh O'Rorke said:

I'm very confused as to why on earth you think anyone didn't know this? The point is transferring it out of the 401k rollover without paying income taxes on 200k - not that you get to buy yourself a tax-free income stream? Like anyone would not do that if it was available!

Because language matters.  Because there are people who don't know, and if the language used is imprecise they can be led to an incorrect conclusion.  It is more important to not give people bad information than it is to give them good information.

Jun 29, 2024 12:50:22 GMT -5 Rukh O'Rorke said:

So if I am reading this right, you can take 200k out of your IRA to buy an annuity without paying taxes on the withdrawal - is this correct?

The language of the OP is precise.

And I am curious as to the invisible audience you are protecting? And if you really think that a post asking - have you heard about this? Is this correct? is going to sway some unknown person of large naiveté to make a 200k annuity payment? Without further investigation and research? And how on earth did this simpleton manage to amass 200k with a con and scam happening around them daily? In fact - should such a person exist, a QLAC would likely be a very good puchase for them!

[azucena]

When you buy an annuity, your investment is paying for commissions, sales charge, expenses and profit for the insurance company. They will also price your payment using your life expectancy. For these reasons, I'd rather maintain my own investment.

[Rukh O'Rorke]

Jun 29, 2024 18:43:09 GMT -5 azucena said:

When you buy an annuity, your investment is paying for commissions, sales charge, expenses and profit for the insurance company. They will also price your payment using your life expectancy. For these reasons, I'd rather maintain my own investment.

I agree! But sometimes paying for surety can be a good move to make.

My biggest worry about doing something like this would be insolvency of the company you buy it from!

[tallguy]

Jun 29, 2024 18:35:33 GMT -5 Rukh O'Rorke said:

Jun 29, 2024 18:19:56 GMT -5 tallguy said:

Because language matters.  Because there are people who don't know, and if the language used is imprecise they can be led to an incorrect conclusion.  It is more important to not give people bad information than it is to give them good information.

Jun 29, 2024 12:50:22 GMT -5 Rukh O'Rorke said:

So if I am reading this right, you can take 200k out of your IRA to buy an annuity without paying taxes on the withdrawal - is this correct?

The language of the OP is precise.

And I am curious as to the invisible audience you are protecting? And if you really think that a post asking - have you heard about this? Is this correct? is going to sway some unknown person of large naiveté to make a 200k annuity payment? Without further investigation and research? And how on earth did this simpleton manage to amass 200k with a con and scam happening around them daily? In fact - should such a person exist, a QLAC would likely be a very good puchase for them!

Yes to the bolded (and there was no problem with your OP), but your follow-up was not, and two other posters after that followed with the term tax-free.  A neutral reading of one suggests the poster knows the difference, although I would argue for the term "non-taxable" rollover instead.  A reading of the other could easily lead to a wrong conclusion if someone doesn't in fact know, although it could also be read as merely a wish.  Regardless, anyone presuming to offer any type of financial knowledge or advice needs to be clear so they can be properly and correctly understood.  Precise language helps that, and if the language is imprecise it should be clarified.    

[pulmonarymd]

An annuity gives you some financial certainty. Given the level of financial illiteracy in this country, that is a benefit. In addition, the payout can be better than the recommended 4% withdrawal you would get from the ira. There are also annuities that allow you to be invested in the market while limiting downside risk, at the cost of limiting gains. But again, it leads to greater certainty when planning retirement. They aren’t for everyone, but can be a part of retirement planning for the right individual

[azucena]

I'd rely on AM Best and Moody's ratings. There is also a bit of state insurance regulatory protection.

www.annuity.org/life-insurance/insurer-insolvency/

[pulmonarymd]

This also dovetails with long term care insurance. I have been meeting with a financial advisor and have need going through all this. There are all kinds of policies that you can buy. They are best if you are too rich to qualify easily for Medicaid, but too poor that paying for LTC would leave you with a large payment. You can use your 401k/IRA to purchase these plans as well

[MN-Investor]

I am NOT a fan of annuities.

Insurance companies love them because they make so much money off of them. You do better - long term - investing on your own in a low expense ratio, broad based stock market fund.

Will the annuity you buy keep up with inflation? Will your heirs get the money if you die before anything is paid out?

I'm going to end up paying a boatload of taxes because of RMDs. I can live with that. Keeping those funds invested in the stock market will generate enough growth and income to offset the additional taxes created by the upcoming RMDs.

[minnesotapaintlady]

Jun 29, 2024 18:55:28 GMT -5 pulmonarymd said:

An annuity gives you some financial certainty. Given the level of financial illiteracy in this country, that is a benefit. In addition, the payout can be better than the recommended 4% withdrawal you would get from the ira. There are also annuities that allow you to be invested in the market while limiting downside risk, at the cost of limiting gains. But again, it leads to greater certainty when planning retirement. They aren’t for everyone, but can be a part of retirement planning for the right individual

Yep, the ones I were looking at were a much higher payout than the standard 4%...and yes I know that's because they're digging into the principle, but I wouldn't be comfortable doing that on my own, because "what if?"

My plan is still to annuitize enough (probably in early 70's, and not more than 20% of investments) that I have a high enough guaranteed income for however long I live no matter what happens to the market.

[Rukh O'Rorke]

Jul 2, 2024 7:18:23 GMT -5 minnesotapaintlady said:

Jun 29, 2024 18:55:28 GMT -5 pulmonarymd said:

An annuity gives you some financial certainty. Given the level of financial illiteracy in this country, that is a benefit. In addition, the payout can be better than the recommended 4% withdrawal you would get from the ira. There are also annuities that allow you to be invested in the market while limiting downside risk, at the cost of limiting gains. But again, it leads to greater certainty when planning retirement. They aren’t for everyone, but can be a part of retirement planning for the right individual

Yep, the ones I were looking at were a much higher payout than the standard 4%...and yes I know that's because they're digging into the principle, but I wouldn't be comfortable doing that on my own, because "what if?"

My plan is still to annuitize enough (probably in early 70's, and not more than 20% of investments) that I have a high enough guaranteed income for however long I live no matter what happens to the market.

I keep changing my mind on this!

So at the height of my thinking I was like - ok I'll do 200k into a qlac and then another 300k into an SPIA when I retire (rather than holding 300k cash?) and then when soc sec began at 70 the spia and soc sec would provide the basics, and when the QLAC came in at 73 that wold be for extras, and the monthly income (soc sec, spia, and qlac) would be  more than the very nice assisted living my mother is in currently, including the over 2k month for the highest level of nursing support. seemed ideal.

but then I'd be left with only 1.2m in my 401k, while still needing to draw from it heavily during the years before social security. So still quite exposed to SORR which is what I am trying to mitigate.

While even if I did "lose it all" somehow, then yes, I would still be ok with soc sec, and the spia+qlac, by 73 but there'd be little to bequeath, and would need some stock exposure for inflation protection.

So a bit back to square one on planning. I do admire that you are so focused and sure on your decisions! I feel vvery wibble wabbly, which I am! I change my mind all the time! I'm sure I will land on some solid plan sooner or later! Until....still getting up for the daily grind and looking forward to the 401k deposit every pay day  .
Becaue that is definitely real progress! And it happens every other week!

[pulmonarymd]

Jul 2, 2024 11:28:39 GMT -5 Rukh O'Rorke said:

Jul 2, 2024 7:18:23 GMT -5 minnesotapaintlady said:

Yep, the ones I were looking at were a much higher payout than the standard 4%...and yes I know that's because they're digging into the principle, but I wouldn't be comfortable doing that on my own, because "what if?"

My plan is still to annuitize enough (probably in early 70's, and not more than 20% of investments) that I have a high enough guaranteed income for however long I live no matter what happens to the market.

I keep changing my mind on this!

So at the height of my thinking I was like - ok I'll do 200k into a qlac and then another 300k into an SPIA when I retire (rather than holding 300k cash?) and then when soc sec began at 70 the spia and soc sec would provide the basics, and when the QLAC came in at 73 that wold be for extras, and the monthly income (soc sec, spia, and qlac) would be  more than the very nice assisted living my mother is in currently, including the over 2k month for the highest level of nursing support. seemed ideal.

but then I'd be left with only 1.2m in my 401k, while still needing to draw from it heavily during the years before social security. So still quite exposed to SORR which is what I am trying to mitigate.

While even if I did "lose it all" somehow, then yes, I would still be ok with soc sec, and the spia+qlac, by 73 but there'd be little to bequeath, and would need some stock exposure for inflation protection.

So a bit back to square one on planning. I do admire that you are so focused and sure on your decisions! I feel vvery wibble wabbly, which I am! I change my mind all the time! I'm sure I will land on some solid plan sooner or later! Until....still getting up for the daily grind and looking forward to the 401k deposit every pay day  .
Becaue that is definitely real progress! And it happens every other week!

I think a consult with a financial planner would be of benefit in this situation, especially if you keep waffling. They can run all kind of scenarios for you, and give you a second opinion on the options. It helped crystallize my planning by doing so, and showed me how the different options would give the same income. It also helps prevent things from becoming too complicated.

[minnesotapaintlady]

Well, to be fair, it's a lot easier to be fairly confident in a decision when I'm still 15 years out before pulling the trigger. Ask me when I'm within a year.  

Case in point the 101 different plans I've come up with the past week or so to deal with this home improvement debt.  Just when I think, "yep, that's what I'm going to do".  I see a squirrel and head off in another direction entirely. 

[azucena]

Rukh - I agree with advice to consult financial planner for a fee so they're not trying to sell you anything. For me it was $600 well spent and I'll likely do it again in 5 yrs or so.

ETA mine was thru Ameriprise and I was candid that I wasn't buying anything but they could have 10 mins or so to pitch me if they absolutely had to. Also told them in exchange, I'd recommend them to friends and family. I know of at least 4 people who have met with them after me.

[Rukh O'Rorke]

Thanks all, I'm just not interested in seeing a financial planner. I know a lot of things that they would advise but for whatever reason, I am just not doing it. And I feel that they would focus on the super obvious stuff and harp on it alot, lol! I am mostly invested in individual and volatile stocks. So move to ETFs stocks and bonds at 60/40 AA. I know the conventional wisdom and I don't need to pay to hear it! But so far not doing it. I may at some point, but I will determin that on my own.

Maybe there is a kind of advisor that would be more helpful?

I might have another consult with my tax person about how best to minimize taxes in retirement, and feel that that would be news I could readily use.

I am experimenting in my thougths and making decisions (without action) and living with it and seeing how I feel. It will be a process, for sure.