... another QLAC question

[merlin3942]

I now am down to 15 more "get ups" until I RE next month. Somehow, in all my thinking/planning about retirement, I never heard (or paid any attention to) this concept called "QLAC". It came up recently in a conversation with a friend (who RE'd a couple of years ago) in the context of what the best strategy is for reducing the tax hit when RMD's kick in. He is 68, so the RMD issue is closer for him than for me, and he said if he had it to do over, he would have invested the maximum possible in a QLAC when he retired at 60, primarily to reduce the RMD he'll be facing in 2 years.

SO, I've been doing some reading about QLAC, both in some of the threads here, and in various other sites ... and am more confused now than before about how to "calculate" whether it would be a good idea or not.

I've never really liked the whole idea/concept of an annuity, in general ... but I also have a visceral negative response when I think about the tax hit caused by RMDs.

Is there some option in I-ORP that would be able to tell me if that would be a good strategy in my particular situation? Or should I just "bite the bullet", and go find a tax advisor?

 

[rodi]

I had to look up QLAC - it's a qualified life annuity contract. It can defer, but not eliminate RMDs if purchased within the IRA. Kitces is not a fan.
https://www.kitces.com/blog/why-a-qlac-in-an-ira-is-a-terrible-way-to-defer-the-required-minimum-distribution-rmd-obligation/

I would think, if you have time before RMDs, your better tool is ROTH conversions.

 

[pb4uski]

Have you considered doing Roth conversions from ER until you are 70?

 

[merlin3942]

Thanks for the feedback. re: ROTH conversion - yes, I do plan to do that as well, to the "top of the current marginal tax rate bracket" each year. But I also hope to sell off some individual stocks that are in a taxable brokerage account that have made considerable gains over the years during that time frame as well to keep the capital gains tax from that as low as I can, so I won't be able to get the 401k balance down to the point where the RMD's won't push me into a higher tax bracket when they kick in. That's why I thought the QLAC might be a good option in addition to max'ing out the ROTH conversion to the top of the lowest tax bracket I can manage to stay within.

Thinking about this stuff is ALMOST enough to make me want to just keep w*rking instead .... NOT! ;-)

 

[Big_Hitter]

Kitces is not a fan.

that's a sign right there that they are a good idea

 

[Big_Hitter]

Or should I just "bite the bullet", and go find a tax advisor?

get a fee-based CFP that knows what he/she is doing - you really need 3 RIGs

read "money for life" by Steve Vernon, FSA

 

[Sunset]

Thanks for the feedback. re: ROTH conversion - yes, I do plan to do that as well, to the "top of the current marginal tax rate bracket" each year. But I also hope to sell off some individual stocks that are in a taxable brokerage account that have made considerable gains over the years during that time frame as well to keep the capital gains tax from that as low as I can, so I won't be able to get the 401k balance down to the point where the RMD's won't push me into a higher tax bracket when they kick in. That's why I thought the QLAC might be a good option in addition to max'ing out the ROTH conversion to the top of the lowest tax bracket I can manage to stay within.
..

So just a thought, if you do the ROTH conversions, leaving the LTCG alone. Then when you are 70 and have to take RMD's , taking the LTCG will be optional, and controllable.
Plus won't at that age and tax bracket, taking the LTCG still be lower than the regular tax bracket ?

 

[RetireAge50]

Like you I had not heard of a QLAC either. Doesn't seem like they solve any problems just delays the inevitable.

My tax strategy is to try to keep my taxable income about the same each and every year. For this reason a QLAC will not work for me.

I would keep it simple and just keep doing what you have done to get to this point. Write down your plan and stick to it as you age.