Qualified longevity annuity contracts, or QLACs, are deferred income annuities that people can purchase during their retirement planning or early retirement, and they postpone receiving the income until they are 80 or older, according to Investment News. QLACs allow retirees to hedge against the risk of exhausting their retirement savings before they pass away. People who have 401(k)s and IRAs can purchase QLACs using up to $125,000 or 25 percent of their account balances.
When retirement plan participants purchase qualified longevity annuity contracts, the qualified funds they use for the contracts are exempt from the required minimum distribution rules that take effect after participants turn 70.5 years old, explains Investment News.
By using QLACs to postpone a portion of their retirement income flow, retirees can delay tax payments on money they don't need in early retirement, according to Northwestern Mutual Life Insurance Company. Other benefits include leaving more assets for a surviving spouse, having sufficient income during the entire retirement and providing income to meet medical needs that develop later in life.
The QLAC rules protect the principal, and legacy benefits apply to spousal and non-spousal income beneficiaries, according to MarketWatch, These provisions ensure that the family, not the annuity carrier, receives all of the funds.