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Do u have a web site with a more clear explanation of that
It is not something our financial advisor/CPA has mentioned.
My husband has funded a significant (for us) deferred benefit plan through his sole-employee S-corp. RMDs will put us in higher tax bracket than we like --especially because of SS even if deferred until 70.
You can look up Roth conversions and Roth ladders if you want to move that tax deferred money over to tax free Roth money. You still have to pay taxes on it though as you move it over.
I understand about converting tax-deferred to Roth but there is a significant penalty doing that if you are in higher brackets...
We have done that in past --when we had tax write offs to offset the conversion income.
it might be an option before my husband has to take RMDs--mine all in Roth.
What I have for a question is how much of my portfolio will it cost? There is a cap of 125k but how much will it cost me to send 125k to a QLAC. If it costs me 15% or more of my portfolio to exclude what I is my actual rate reduction of my RMD because I already paid out to the insurance company who I am supposed to buy the QLAC from. That money is now gone never to be returned. I might as well buy an annuity or a life insurance policy. Better yet head to Vegas and leave them my money for all the good it does.
With life insurance and annuities, the commission paid to the selling agent or advisor is “built in” to the product. By the way, annuities are life insurance products and issued by life insurance carriers. “Built in” means that if you put $100,000 into a QLAC product, you will see $100,000 on your statement.
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Commissions are paid to the agent from the reserves of the issuing annuity carrier. The bottom line is that buying a QLAC is a net transaction to you, but the agent is getting compensated.
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QLACs are very simplistic products that I consider to be pro-consumer. Because of that simplicity, the commissions paid are low.
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QLACs will eventually become the most popular annuity type in the country because it is a simplistic and efficient way to plan for future income using your IRA money. With no annual fees, and low commissions to the agent, it’s only a matter of time until the annuity consumer makes this prediction come true.
It's interesting that the two giant low cost investment companies, Fidelity and Vanguard, currently do not offer QLAC
But where is the QLAC option at Fidelity and Vanguard? Nowhere to be seen. Both companies offer annuity purchasing services outsourced thru third party companies. Vanguard even charges you 2% on the purchase deposit amount which is reflected in now a lower income payment to the annuitant. An example of $100,000 purchase of a longevity annuity at Vanguard would cost you a fee of $2,000!
Here is some good suggestions on questions to ask before buying a QLAC
Sorry I didnt mean that you should answer that question unless you had the answer. My question really was retorical. I would hope that just because something says it is going to save you money that it really will save money. In the case of this a QLAC based on what I know of them is an insurance annuity. I dont think it is anything more or less. It has rules governing it and for some it might be a good thing. It is like anything take it with a grain of salt. Figure out the true cost by doing a cost analysis. See if it works to your advantage before you buy. Ask for second and third opinions. Learn and read about any investment before you buy. In my experience insurance companies make a poor investment choice for many if not most. Yes insurance is to protect income and yes those are important, but as I learned buy term and invest the difference, I become skeptical when insurance companies are involved in investments. Yes investment companies and insurance companies should keep separate.
So if you thought that I was asking you that, I sincerely apologize. I should have made my point clearer.
What I have for a question is how much of my portfolio will it cost? There is a cap of 125k but how much will it cost me to send 125k to a QLAC. If it costs me 15% or more of my portfolio to exclude what I is my actual rate reduction of my RMD because I already paid out to the insurance company who I am supposed to buy the QLAC from. That money is now gone never to be returned. I might as well buy an annuity or a life insurance policy. Better yet head to Vegas and leave them my money for all the good it does.
golfinduo, There are NO annual fees for QLAC. There are no fees for the life of the policy. The agent gets paid a small commission that is paid out of the insurance carrier's reserves, so you don't have any reduction in your principal.
There are both positives and negatives to the QLAC. The positives are that the principal is protected using a fixed annuity structure. Therefore, there is a lifetime income guarantee. There are no annual fees. Unlike other types of annuities, the QLAC contract is easy to understand and is transparent and not obfuscated. You can structure the QLAC to leave a legacy to your heirs, you can ladder the QLAC to start at different ages which helps with dealing with inflation, you can add a Cost of Living Adjustment rider to the QLAC policy, and for tax planning purposes the QLAC can be started up to age 85 giving an additional 15 year tax deferral on accounts that require RMD (i.e. Traditional IRA).
On the negative side: there is a lack of liquidity. Once you purchase the QLAC you cannot change your mind and get your principal back, there is no growth in principal during the deferral years, the contract is rigid, there is no cash surrender value, there is the 25% or $125,000 (whichever is less) ceiling so it doesn't give great amounts of tax benefit. But some people feel that every little bit helps.
Okay that answers most of the questions. I agree that it could be a good idea for some and maybe even me. I do not have trouble with the idea of an annuity. It has a good track record of making people feel secure and protecting that income stream. I read that they have a low initial fee that pays the broker and that is good. I will do more research too but only as a learning incentive for myself. Having no annual fee or maintenance fee is good. That is better then some investment companies but they are managing the money to make money not just to provide an income stream. That in itself is two different types of investing.
It is something to consider when looking at an entire portfolio and what a person(s) expect to get out of it. Thank you BellaDL and LookingatFL. You answered the questions that were not answered in the article.
Too bad it is such a limited amount. I'm thinking I might as well pay the taxes and then I can do whatever I want with the money. May be better off in the long run. But, I do really hate paying taxes.
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