Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

 Must satisfy all requirements applicable to annuitized defined contribution plans other than the requirement that payments must start by the RBD. A-17(a)(3). The principle other requirements are (1) the rule that the contract must provide level payments paid annually (or more frequently) that do not increase (except within certain permitted limits, such as a COLA), (2) limitations on the survivorship benefit allowed, and (3) rules for how to compute the RMD with respect to the nonannuitized portion of the plan when only part of the account is “annuitized.” For details see ¶ 10.2 .

 May not provide a commutation benefit, cash surrender right, or other similar feature. A- 17(a)(4).

 Must state that the contract is intended to be a QLAC. A-17(a)(6).

 Must not be a variable, equity-indexed, or “similar” contract except as may be later permitted by Treasury guidance. A-17(a)(7).

 Must limit death benefits as described below. A-17(c).

Dollar and percentage limits on QLAC purchases

The amount paid for QLACs may not exceed the lesser of $125,000 or 25 percent of the account balance. A participant can buy multiple QLACs in his/her traditional IRA(s) provided the cumulative total premiums paid for them does not exceed these limits. Note the following details about these purchase limits. Citations are to subsections of Reg. § 1.401(a)(9)-6 , A-17, unless otherwise noted.

 The $125,000 amount will be adjusted upwards for inflation starting in 2015. A-17(d)(2)(I).

 Premiums paid for QLACs (or contracts intended to be QLACs) purchased in any other defined contribution plan for the participant’s benefit are counted in applying the dollar limit. For example, if the participant spends $125,000 on a QLAC in her 403(b) plan account at work, she has used up her dollar limit and cannot buy any additional QLAC in the IRA. A-17(b)(2)(ii)(B).  The 25 percent limitation is applied to the total account balance (including the value of any QLAC). Unlike the dollar limit, the percentage limit is apparently applied without regard to the account balance in other types of plans. A-17(b)(3). The Preamble to the regulation states that all traditional IRAs will be considered a single account for applying this limit, just as required minimum distributions taken from one traditional IRA can satisfy the distribution requirement with respect to other traditional noninherited IRAs owned by the same individual. See T.D. 9673 (7/2/14), Section II (“IRAs”), second paragraph. However, I cannot find this statement in the regulation itself.

QLAC concept does not apply to Roth IRAs

The limitations on purchases of longevity annuities do not apply to Roth IRAs during the owner’s life. That’s because there is no lifetime minimum distribution requirement applicable to a