IRS Final RMD Regs Clarify QLAC Options 

The regulations provide that, for purposes of the limit on premiums used to purchase a qualified longevity annuity contract (QLAC), if another insurance contract is exchanged for a QLAC, the fair market value of the exchanged contract is treated as a premium paid for the QLAC. The final regulations also provide that if an insurance contract is surrendered for its cash surrender value, the surrender extinguishes all benefits and other characteristics of the contract, and the cash is used to purchase a QLAC, only the cash from the surrendered contract is treated as a premium paid for the QLAC.  Additionally, payment of survivor benefits to an individual’s former spouse under an annuity does not cause the contract to fail to satisfy the QLAC requirements merely because their divorce occurred after the contract is purchased.  That's true if a QDRO satisfying certain requirements has been issued in connection with the divorce. The QDRO must: (1) provide that the former spouse is entitled to the survivor benefits under the contract; (2) provide that the former spouse is treated as a surviving spouse for purposes of the contract; (3) not modify the treatment of the former spouse as the beneficiary under the contract who is entitled to the survivor benefits; or (4) not modify the treatment of the former spouse as the measuring life for the survivor benefits under the contract.  For more information on the rules governing QLACs, visit Tax Facts Online. Read More: Link to Q556.  Note: Q is updated.