Speak with a Registered Agent: 1-866-223-2121

Speak with a Registered Agent: 1-866-223-2121

QLACs: Life Only or Life with Cash Refund?


Over the past couple of years, Qualified Longevity Annuity Contracts (QLACs) have grown in importance because of changing government regulations. QLACs have two important benefits that have added to their increasing popularity. They pay a future stream of guaranteed lifetime income and help you lower the taxes for Required Minimum Distributions when you have a traditional IRA. In Stan Haithcock’s Marketwatch article “The two best ways to structure a QLAC,” he gave the benefits and drawbacks of what he considers the best ways to contractually structure a QLAC.

Back in 2014, the Treasury Department and the IRS began allowing the use of QLACs within qualified retirement plans. You can buy a QLAC with the lesser amount of $125,000 or 25% of your retirement account assets. The income stream you receive from this QLAC can be deferred as late as age 85 or received as early as age 71. Your QLAC dollars aren’t subject to Required Minimum Distribution (RMD) rules, so they save you on taxes. The income you receive later in life can be used to pay your monthly expenses, which eliminates your longevity risk in life.

The first option that Mr. Haithcock recommends with a QLAC is the “life only” option. This gives you the highest amount of income payments and guarantees that you will never outlive your money. After you start receiving the income, the balance in the QLAC no longer belongs to you and disappears if you die before receiving all of your principal paid back to you. If you aren’t worried about leaving the balance of your QLAC funds as a legacy, the “life only” option will allow you to receive the highest level of income possible. You can also choose to have a “joint life only” policy that will pay out for as long as both you and your spouse live. This option is allowed even if the qualified retirement funds are only in your name. A “life only” with return of premium option will pay your premium to your listed beneficiaries if you die before starting your income stream.

“Life with cash refund” is the most popular option chosen with QLACs. Mr. Haithcock prefers to call it the life with balance refund option because any remaining account balance is paid out to your heirs when you die. That means that the insurance company doesn’t keep the remaining balance if you die before receiving your money back in income. You are still guaranteed lifetime income from your QLAC with this option. This can be structured as a “joint life with cash refund” so that both you and your spouse will receive income until the last one of you dies. In this case, your family would still get any remaining premium after both deaths. The income payouts are less when you choose the “life with cash refund” option, but some people prefer receiving less income to know that all their retirement savings will go to them or their family rather than an insurance company.

The lifetime income guarantee paid from your QLAC is based on your age and life expectancy. You are transferring your longevity risk to an insurance company and creating your own contractual pension with an annuity. As with any annuity, it is important to receive multiple quotes from different companies before deciding to make a purchase. QLACs offer required minimum distribution relief and guaranteed lifetime income with your qualified retirement savings. You can opt for a “life only” or “life with cash refund” option depending on your personal needs. QLACs can be a great option to create income with your traditional IRA or 401k savings.

Written by Rachel Summit

Follow Rachel, aka Finance Mama, on Twitter and Google+

For more information about the product mentioned in this article contact us here:

Newest Blog Posts

Information Request Form

If you have questions or would like more information, please complete this form and a licensed professional will be happy to help. For the fastest response, please select 'Phone' as your Contact Preference.

By providing your information and clicking 'Submit' above, you acknowledge that you have read and agree to this site's privacy policy. You also provide your consent to be contacted at the email address or phone number provided above (including any wireless number) by licensed agents or representatives from or on behalf of AFYI Holdings Group, LLC and other companies to provide the information requested and/or offer annuities or financial products. You understand that these calls or SMS messages may be generated using an automated telephone dialing system, a pre-recorded message, or artificial voice. Consent to receive such messages is not a condition to purchase any goods or services. You may opt out at any time by following the instructions in the messages you receive.  Receiving quotes and information through our website is free, and you are under no obligation to purchase any goods or services as a result of this request. You affirm that you are the subscriber of the provided telephone number or that the subscriber authorized you to provide the number. Message and data rates may apply. AFYI Holdings Group, LLC is committed to respecting your privacy and adhering to all applicable laws and regulations, including the Telephone Consumer Protection Act (TCPA).