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Old 09-29-2015, 06:29 PM   #61
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On a different subject (but still QLACs): Folks who know how QLACs work, please explain to me the tax benefit in a bit more detail. I understand that one can use (IIRC) up to $135K from their qualified plan. The advantage would be to lower future RMDs since the qualified plan's balance would be lower. Now, 1) must one pay taxes on the (in this case) $135K withdrawal? 2) If not, does one pay taxes when receiving eventual payments when the QLAC matures?

If either of these two questions is answered "yes", it would be debatable whether QLACs have actual tax benefits. I sense that maybe the answer to both is "no" in which case this seems like a license to steal from the IRS. Please forgive my ignorance and educate me. Much thanks.

Oh, on the concept of whether some forms of annuities ever makes sense, I am firmly in the camp of "yes", they may make sense as long as they are the "low cost" version (i.e, not "indexed" high-cost variety, but rather the SPIA or DIA variety.) YMMV
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Old 09-29-2015, 06:39 PM   #62
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Quote:
Originally Posted by Koolau View Post
On a different subject (but still QLACs): Folks who know how QLACs work, please explain to me the tax benefit in a bit more detail. I understand that one can use (IIRC) up to $135K from their qualified plan. The advantage would be to lower future RMDs since the qualified plan's balance would be lower. Now, 1) must one pay taxes on the (in this case) $135K withdrawal? 2) If not, does one pay taxes when receiving eventual payments when the QLAC matures?

If either of these two questions is answered "yes", it would be debatable whether QLACs have actual tax benefits. I sense that maybe the answer to both is "no" in which case this seems like a license to steal from the IRS. Please forgive my ignorance and educate me. Much thanks.

Oh, on the concept of whether some forms of annuities ever makes sense, I am firmly in the camp of "yes", they may make sense as long as they are the "low cost" version (i.e, not "indexed" high-cost variety, but rather the SPIA or DIA variety.) YMMV
Qlacs are just like an immediate annuity bought from and IRA/401k you pay taxes on the distributions when they occur. They are deferred annuities so there are no distributions for a while thus no taxes until the distributions start.
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Old 09-29-2015, 06:46 PM   #63
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You can take 25% or $125k, whichever is the smaller, and buy a QLAC. You must start payments by age 85. The amount used to buy the QLAC is not used in your RMD calculation.
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Old 09-29-2015, 07:01 PM   #64
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Sorry, one more thing I forgot. In this discussion, the chances of living to 85 (and beyond) seem to be a sticking point to some (quite understandable from an actuarial point of view.) On a strictly empirical basis, I know almost two dozen folks within my social sphere who are between 85 and 99. There are several men in this group - one 94 who is still quite with it and reasonably active. Living in Hawaii, one meets a very large number of older folks as HI is the state with the longest-lived people. I'd like to be one of them (someday.) Perhaps a QLAC would make the most sense for one already living in Paradise! YMMV
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Old 09-29-2015, 07:10 PM   #65
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Qlacs are just like an immediate annuity bought from and IRA/401k you pay taxes on the distributions when they occur. They are deferred annuities so there are no distributions for a while thus no taxes until the distributions start.
If I pay taxes on the QLAC payments (at 85 and beyond) what is the theoretical tax advantage? Is it simply "delaying" payment? Or is it that I might get "lucky" and die before payments begin in which case the IRS gets my final single-digit salute instead of a tax payment? Sorry to be dense.
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