Exploring Uses for Your Required Minimum Distribution Part I: The Qualified Longevity Annuity Contract


By Maurice Stouse, Branch Manager and Financial Advisor

Maurice StouseAs we approach the end of the year, many of you will be needing to take your Required Minimum Distribution (RMD) from your retirement accounts. That must be done by Thursday, Dec. 31, 2019. You work with your plan provider or financial institution where your retirement plan or IRA is held and complete a distribution, because it is required by the IRS. You can do so by completing a form or through providing instructions to your financial institution.

The RMD typically 1) begins at age 70½ (or April 1st in the year following the year you turn 70½) and 2) takes into account the plan balance from Dec. 31 of the previous year and 3) utilizes the IRS tables for mortality – how long you are expected to live. The number or factor for mortality usually is the divisor into the balance which then determines the amount that must come out. That amount – with some exceptions- is taxable income.
This article further explores utilizing some of your assets in your retirement plan to address concerns you might have regarding finances later in life. One of these that is often heard about is not running out of income. This in part might be addressed through utilizing the Qualified Longevity Annuity Contract (QLAC) with your RMD. It is a way for you to 1) provide for future lifetime income while 2) lowering the taxable amount of your RMD.

Here is how it works: You have the option of moving 25% or $130,000 from your retirement account (whichever is less) one time during your retirement into a QLAC. That movement is not taxable, and it also lowers the retirement account balance hence making future payments smaller and the tax owed potentially less on future distributions.
Simultaneously the distribution is moved into the QLAC in the form of a deferred income annuity. That is a vehicle that offers fixed income payments. Current rules specify that the annuity must begin making lifetime payments to you no later than age 85. A deferred income annuity can offer fixed payments for life – cannot be outlived while potentially also offering survivor benefits. Many might consider this arrangement as an addendum to your income plan or a personal pension plan as it is individualized for you.

To determine if this is a strategy that might work for you, please see your tax advisor and financial advisor to learn more.

Maurice Stouse is a Financial Advisor and the branch manager of the First Florida Wealth Group and Raymond James and he resides in Grayton Beach. He has been in financial services for over 32 years. His main office is located at First Florida Bank, 2000 98 Palms Blvd, Destin, Fla. 32451 with branch offices in Niceville, Mary Esther, Miramar Beach, Freeport and Panama City. Phone 850.654.8124. Raymond James advisors do not offer tax advice. Please see your tax professionals. Email: Maurice.stouse@raymondjames.com.
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