If you are one of many Americans who have salted away large sums of money in 401(k)s and IRAs, you face a tax dilemma. Once you retire, you must generally start taking required minimum distributions (RMD) when you reach age 70½. And the amount, determined by an IRS formula, can be substantial. For example, if you have $1 million in an IRA or 401(k), you must withdraw $36,496.35 at age 70½.
A QLAC isn’t a magic bullet. It’s a fixed annuity, and you cannot change your mind once you have made the deposit. You need to be certain that this is money that you do not need nor want to pay tax on prior to the date the income begins.
One important provision that you can include in your QLAC to protect yourself is an income start date change rider. This will commonly allow you to accelerate the payment of income to as short as five years after you made the purchase if you decide you need additional income. You’re forfeiting liquidity of your money that is deposited into the QLAC in return for being able to reduce the amount of your RMD to a maximum of your age 85.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Kim Franke-Folstad contributed to this article.
-
Jabil Stock Pops After a Beat-And-Raise QuarterJabil stock is higher Wednesday after the electronics firm beat earnings expectations and raised its full-year outlook. Here's what you need to know.
-
UBS Global's Solita Marcelli: It's a Green Light for U.S. Stocks in 2025A strong economy, rate cuts and continued AI spending should support stocks in the new year, says UBS Global's chief investment officer, Americas.
-
You've Got a Trust: Now Who Should Be the Successor Trustee?You've set up a trust to protect your assets and your beneficiaries, but you still must choose the right person to execute your wishes. Here's how to do that.
-
Three Ways Fiduciary Financial Planners Put You FirstFiduciary financial advisers are required by law to work in your best interest. Here's how they are key to intentional and efficient financial management.
-
How Long-Term Care Insurance Has Become More FlexibleToday's long-term care insurance offers retirees more appealing options, which can preserve assets and protect the financial stability of a healthier partner.
-
Your Loved One Fell for a Romance Scam: What Not to DoConfronting them probably won't work, but asking them some key questions and urging them to take certain actions could.
-
Three Ways to Help Create Financial Stability for a WidowLoss of a spouse often leads to financial insecurity in retirement. These strategies can help ensure financial stability for the surviving spouse.
-
How to Embrace Personal Growth After a Gray DivorceDivorce at any age is a traumatic event, and resetting psychologically, especially after a late-in-life divorce, is more important than ever.
-
Three 'Yellowstone' Estate Planning LessonsWe can learn a lot from John Dutton's estate planning mistakes. Here are just a few that relate to families in general and family businesses in particular.
-
Claim It Early or Delay? When to Start Taking Social SecurityTiming is everything when it comes to starting Social Security. Here are the top reasons why people choose to delay or take it early, according to one expert.
