Adult Content: QLAC's Are they good?

[pcxmbfj]

If you are facing RMD from your IRA you should research Qualified Longterm Annuity Contract's.
If you already know them tell me the plus and minus issues.

[JasonF]

I think Michael Kitces' blog entry is a good encapsulation of QLACs.

https://www.kitces.com/blog/why-the-new-qualifying-longevity-annuity-contract-qlac-rmd-regulations-for-dont-mean-much-for-retirement-income-yet/

Since you're presumably fit (this is a cycling forum after all) you're expecting to be long-lived (genetics aside) this is something to strongly consider. My main issue with any annuity product these days is that with rates so low the payouts will also be correspondingly low.

[SPOKE]

Take a look at "fixed index annuity" products. Nationwide Insurance is one company that offers these thru independent brokers.

[JasonF]

Take a look at "fixed index annuity" products. Nationwide Insurance is one company that offers these thru independent brokers.

Generally speaking, annuities that aren't the single premium immediate annuity variety (SPIA) have excessively high fees which negatively impact income - especially in this low interest rate environment. This includes index annuities which as an attorney and CFP I would hesitate to recommend. The pitch is promising: participate in the market's upside while being 100% protected on the downside. Sounds too good to be true and it is when you look at participation rates (how much upside you get), commissions, fees, etc...Also, since these products are regulated as insurance products and not securities, it's very difficult to determine what you're actually getting and what you're paying.

However, QLAC's have a unique feature that allows them to "count" as IRA RMD's - despite the fact that you won't receive payments from the product for many years (usu 20) into the future. In some cases that's not a bad deal. Although if you're charitably-minded and had sufficient assets to cover retirement, I would recommend donating your RMD to charity (assuming the tax break is extended for 2015).

[pcxmbfj]

Thanks to all respondents.

My Fidelity AE just make me aware of this vehicle on our last call.

The appeal to me is the postponement of RMD.

In a couple of years I'm required to take significant RMD and will cross a tax bracket.

I don't need the money to live and the $125,000 deferment would be welcomed news.

JasonF, I don't how to judge return and merits of this option and the quoted 19% seems unrealistic or irrelevant to actual return.

Any experience with product will be welcome.

[josephr]

just a side-note---if you're taking a distribution when you keel-over, your inheritants will also be required to take distributions...even if grandkids received it for college. Its suggested they put their distributions into a 529 plan. Taxes don't really come into play for the kids though if they fall under the minimum income reporting threshold.

disclaimer: I'm not a certified financial planner/etc....just another doofus on the internet who's had to get into some of this stuff before and this is what our CPA said.

[Ralph]

if you are going in that direction.....check with Vanguard for their "no sales commission" annunities. Then compare.

I'm retired, required to take RMD, and no way would I consider an insurance product for an investment vehicle. Sometimes it's cheaper in long run to just pay some taxes.

[JasonF]

Thanks to all respondents.



JasonF, I don't how to judge return and merits of this option and the quoted 19% seems unrealistic or irrelevant to actual return.

Any experience with product will be welcome.

Don't know which particular product this is (and there are dozens if not hundreds) but if they're throwing around a 19% return then there's some optimistic actuarial assumptions going on here. Like you're going to live to 105. In the end, annuities are a crap shoot - live long and pull out more than you put in and you "win." Expire earlier than expected and the insurance company wins. Since it's impossible to predict what will happen, don't go all in with an annuity.