Taking Advantage of Higher QLAC Limits in 2019
You'll need to crunch some numbers before you contribute more toward your qualified longevity annuity contract for retirement.
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Question: I invested $125,000 of my IRA in a qualified longevity annuity contract a few years ago. That was the maximum I could contribute then, but now I see that the maximum for 2019 is $130,000. Can I add $5,000 to the QLAC?
Answer: Possibly—though this can be a little tricky and requires a calculation, says Christine Russell, senior manager of retirement and annuities for TD Ameritrade.
The QLAC premium limit is $130,000 for 2019, and that limit applies to all retirement accounts you own. So if you already invested $125,000 in a QLAC in your IRA under the old limit, you may be able to make additional QLAC purchases. However, Russell says, a lot of people forget that there is a percentage limit as well.
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Your total QLAC premiums can’t exceed 25% of your retirement account balance, including the fair market value of QLACs already purchased, or $130,000—whichever is less. To determine the 25% limit for your IRAs, include all traditional IRAs, SEP IRAs or SIMPLE IRAs, but not Roth IRAs or inherited IRAs. (The 25% limit applies separately to each 401(k) you own.)
For example, let’s say you paid $125,000 for a QLAC in 2016 when your IRA account balance was $500,000. As of December 31, 2018, the non-QLAC IRA balance is $380,000, while the QLAC’s value is $125,000. (You should receive IRS Form 1098-Q, which shows the QLAC value.) That totals $505,000, and 25% of that total is $126,250. In this case, the percentage limit means you can only add $1,250 to the QLAC this year. If the IRA balance were larger, then the owner could add more to the QLAC in that example, says Russell. If the IRA balance was smaller, she notes, the owner might not be able to make any new QLAC investment.
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