Qualified Longevity Annuity Contract

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A qualified longevity annuity contract (QLAC) is a type of annuity that is purchased using a qualified retirement account, such as an IRA or 401(k). Due to the fact that it is a deferred annuity, the payments will not start until after the investor has retired.

A QLAC's primary goal is to give retirees a guaranteed source of income later in life when they might be more susceptible to financial instability. RMDs are normally not applicable to funds used to acquire a QLAC, allowing investors to postpone paying taxes on that money until they begin receiving annuity payments.

For a QLAC to be eligible for the tax exemption on RMDs, there are a number of standards that must be met. For instance, there are restrictions on how much money can be put in a QLAC (currently $135,000 or 25% of the account balance, whichever is smaller) and that the annuity must start paying out by a particular age (often 85).

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