Life and Death Planning for Retirement Benefits

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Chapter 10: RMD Rules for “Annuitized” Plans 441
Roth IRA, therefore, buying an annuity that does not start payments until much later than age 70½
is “not a problem” for a Roth IRA. See Reg. A-14(d).
Longevity annuities held in a Roth IRA are not considered QLACs and do not count when
applying the 25 percent/$125,000 limit on QLAC purchases in the participant’s traditional IRA.
A-17(d)(3)(ii). This regulation also provides rules for applying the limits after a QLAC owned by
a traditional IRA is converted to a Roth.
10.3.06 Death benefits under a QLAC
Since a QLAC is supposed to be insurance against living “too long,” it makes no sense for
the QLAC to provide a death benefit. The cost of providing a death benefit must necessarily reduce
the true “longevity insurance” the contract can provide. But human nature being what it is, people
only want to buy this product if it is heads I win tails you lose, so the regulation permits certain
limited death benefits that can be provided in a QLAC. In general, the permitted death benefits
must either be in the form of one of the following types of survivor annuity, or, alternatively, the
contract can provide a “return of premium” guarantee-type death benefit in lieu of any survivor
annuity. (The contract could also provide no death benefit at all.) A-17(c)(4).
 If the participant’s surviving spouse is the sole beneficiary, the contract can provide a life
annuity to the surviving spouse provided the annuity payments do not exceed the annuity
payments the participant would have received. A-17(c)(1).
 If the participant died before the annuity starting date of his own annuity, a greater
survivorship annuity to the spouse-sole beneficiary is permitted if necessary to satisfy the
qualified pre-retirement survivor annuity (QPSA) requirements of [se this
would not apply to IRAs, which are not subject to this requirement], and the survivor
annuity must commence no later than the annuity to the participant would have commenced
had he lived. A-17(c)(1)(ii).
 If the participant’s surviving spouse is not the sole beneficiary, the contract can provide a
life annuity to the surviving beneficiary. If the beneficiary is the same age as, or older than,
or not more than two years younger than, the participant, the maximum annuity is the same
annuity the participant would have received. If the beneficiary is more than two years
younger than the participant, the amount of the maximum survivor annuity is reduced per
a table in the regulation. A-17(c)(2).
10.3.07 Planning use for QLACs
Like other “annuitized” portions of the IRA, the value of a QLAC is excluded from the
account balance when determining the value of that account balance for purposes of computing
the required minimum distribution from the nonannuitized portion of the account. See
This may create a minor planning opportunity for certain individuals:
Bob Example: Bob is nearing age 70½. Soon he will have to start taking required minimum
distributions from his large traditional IRA. Because he is still working, his income (and his
income tax bracket) are both high, so he is not feeling good about having taxable distributions
from the IRA added onto that already-high income. By purchasing a QLAC now for $125,000,