If there’s one thing that retirees loathe as much as seeing their individual retirement accounts lose value due to a stock market decline, it is paying income tax on IRA distributions. Worse still: paying tax on required minimum distributions at the IRS-mandated age of 70 ½ — distributions forced on retirees whether they need the income or not.
Hence the growing attraction of qualifying longevity annuity contracts or QLACs. The products are designed for seniors who (1) want to defer income to pay for expenses later in life; and/or (2) those desiring to work into their 70s without having to also pay taxes on their retirement savings.
The latest entrant in the QLAC market is MetLife. The company has unveiled a QLAC version of its Guaranteed Income Builder deferred income annuity for individual clients. Providing a pension-like stream of income for life, the product now avails clients of the flexibility to defer a portion of the required minimum distributions (RMDs) from their qualified IRA to a later date.
“In 2016, the first wave of the retired baby boomers are set to begin taking their RMDs,” says Elizabeth Forget, executive vice president of MetLife Retail Retirement & Wealth Solutions. “Though RMD rules require that individuals begin taking distributions from IRAs once they reach age 70½, not everyone will need these funds at that stage in their life.
“[M]any boomers will increase their taxable income when taking RMDs at age 70½ because they are required to take these funds or face a penalty,” she adds. “By using Guaranteed Income Builder as a QLAC, clients can defer income payments until their chosen start date, which can be as late as age 85.”
When a client purchases Guaranteed Income Builder as a QLAC, the portion of their IRA balance they used to buy the product is excluded from the funds used to calculate the RMDs they are required to take beginning at age 70½. Clients can then begin income payments at a chosen start date, which can be as late as age 85. The maximum amount that can be used for a QLAC is the lesser of 25 percent of the individual’s IRA balance or $125,000.
“By allowing clients to defer payments from their IRAs, Guaranteed Income Builder as a QLAC gives them a significant level of flexibility to manage both their assets and tax obligations — further enhancing their ability to retire with confidence,” says Forget.