New Legislation, If Passed, Would Increase QLAC Limits
- Part of the The Retirement Plan Simplification and Enhancement Act calls for making upward revisions of the QLAC limit
- Current rules cap contributions to the lesser of $130,000 or 25% of your 401(k) or IRA account balance to a QLAC
- Under the new proposed rules, you could contribute up to $200,000 or 100% of your 401(k) or IRA account balance to a QLAC
New legislation introduced in Congress on December 1, 2017 could have bearing effects on the market for Qualified Longevity Annuity Contracts (QLACs) and would increase QLAC limits. To jog your memory, QLACs are a particular kind of longevity annuity that can be purchased with qualified funds and where income doesn’t need to start within 12 months (which used to be the requirement if you were looking to purchase and have income start at any point after age 70 1/2).
One part of the The Retirement Plan Simplification and Enhancement Act (H.R. 4524), introduced by Rep. Richard E. Neal (D-MA) on December 1, 2017, calls for making upward revisions of the QLAC limit.
Under the new proposed rules to increase QLAC limits, you could contribute up to $200,000 or 100% of your 401(k) or IRA account balance to a QLAC. The existing rules, in effect as of January 1, 2018, cap contributions to the lesser of $130,000 or 25% of your 401(k) or IRA account balance to a QLAC.
Increase QLAC Limits: How The Rules Would Work
If you’ve already purchased a QLAC, you’d be able to add to your policy or purchase a new policy that is up to the difference between your existing policy and $200,000.
If you haven’t yet purchased, the legislation would increase QLAC limits which means you’d be able to buy up to $200,000. Bear in mind — you’ll still need to pass the insurer’s suitability requirements and if the purchase represents more than 25% of your assets, that could pose a potential issue.
It also means that you’ll no longer need to closely track your year-end balance and also hat you won’t have to wait a calendar year between the time you roll out of a 401(k) to an IRA and then into a QLAC (as you do now).
Who Is Buying QLACs?
Increasingly, we have clients buying small (an initial contribution of as little as $5,000) and then contributing in amounts of as little as $100 over time. This is making the QLAC and other longevity annuities are accessible to more Americans, and more pre-retiree or retirees are thinking of it as an asset allocation option, rather than just an annuity product that has be bought in large amounts and all at once.
What Else Would The Bill Do?
According to a recent JPMorgan report, these are the other major provisions of the bill:
- “Required minimum distributions (RMDs): Eliminate RMDs for individuals with aggregate balances in plans and IRAs of not more than $250,000, and increase the age at which RMDs must commence to 71 in 2019, 72 in 2024 and 73 in 2029.
- Traditional IRA contributions: Permit individuals who are still working after reaching age 70½ to continue contributing to traditional IRAs.
- Plan start-up credit: Increase the plan start-up credit for employers with 100 or fewer employees to a maximum of $5,000 per year for the first three years.
- Correction of automatic enrollment errors: Permit employers to correct automatic enrollment and automatic escalation errors within 9½ months after the end of the plan year.
- Coverage of part-time employees: Require plans to permit employees who work at least 500 hours per year for three years to participate in a 401(k).
- 401(k) nondiscrimination safe harbor: Eliminate the 10% cap on automatic escalation of participant contribution rates in safe harbor 401(k)s.
- Consolidation of DC plan notices: Permit various notices required under ERISA and the Internal Revenue Code (for example, qualified default investment alternative and participant fee and investment notices) to be delivered in a single notice.”
Will It Pass?
As with any in Washington, it’s always hard to say. It is, however, refreshing to see the QLAC coming front and center into the retirement. We’ll continue to keep our newsletter subscribers up to speed as things unfold.
How Can I Purchase a QLAC?
At Blueprint Income, we offer QLACs from more than 15 top rated insurance companies. Click below to get real-time personalized quotes, where you can compare options offered from different insurers on an apples-to-apples basis.
From there, you’ll get access to our annuity guides, team of specialists to help you analyze your retirement finances and walk you through the application process.