Do you have clients with qualified dollars in defined contribution plans like 401(k)s or various types of IRAs earmarked for retirement? I bet the answer for most of you is yes. A growing number of people are relying on qualified more than non qualified assets that they will eventually need to turn into retirement income. With this trend, advisors will need to know their way around a QLAC and how it helps their clients with their qualified assets.
The Treasury Department’s establishment of the Qualifying Longevity Annuity Contract (QLAC) is seen as a regulatory endorsement of the retirement industry and another signal of an emerging emphasis on the power of guaranteed income within the overall retirement system. It also represents an opportunity for advisors to counsel their clients on what a QLAC can mean for their retirement. In fact, QLAC might be the best conversation starter we’ve seen in years. Here are three things you should know about QLACs:
QLACs help clients get the retirement they want
Until now, an individual’s ability to create a personal retirement income plan tailored to his or her specific needs has been limited by Required Minimum Distribution (RMD) rules, which generally require retirees to begin withdrawing from their qualified accounts by age 70½. Now, your clients will have the freedom to build their own customized income plan, without an arbitrary deadline to start withdrawals, by purchasing a Deferred Income Annuity (DIA) as a QLAC with a portion of their qualified assets. They’ll put money in as they near retirement, and select a date to start income at any age up to 85. This works for:
- a client who wants to use other assets to fund the early years of his or her retirement,
- a client who wants to defer income to pay for expenses later in life, or
- a client who wants to work into his or her 70s without having to also pay taxes on their retirement savings.
New York Life has tracked income start dates on our deferred income annuities (before QLAC was an option). What we see is that our clients who purchase DIAs with non-qualified money start to take income from them as early as age 60 to as late as 85. This illustrates to us that retirement income needs are very different for each individual. Conversely, the income start date for those clients using qualified money sits in the 68-70 age range because of the RMD requirement. The QLAC regulations recognized those differences and now individuals with qualified dollars will have the same choices as those with non qualified assets.
QLAC lets clients flex their deferral muscle and maximize income.