A required minimum distribution (RMD) is the amount of money that must be withdrawn annually from specific retirement plans, such as 401(k)s and certain IRAs, including the traditional IRA. RMDs must be taken by April 1 of the year after you turn 73 years old. You must calculate and withdraw the correct RMD every year after that, or face a penalty from the IRS. RMDs do not apply to Roth accounts.
Some taxpayers have other sources of income to live off and don’t need to take distributions from their retirement accounts. How does someone delay the RMDs beyond age 73?
The answer is a Qualified Longevity Annuity Contract (QLAC). What is a QLAC? A QLAC is a type of deferred income annuity, which allows you to make a lump sum payment (or a series of payments) in exchange for guaranteed income in retirement. With this type of annuity, you use funds from a qualified retirement account—like a traditional 401(k), traditional IRA, 403(b), 457(b), SEP IRA, or SIMPLE IRA—to purchase the annuity. Doing so offers a few key benefits:
- You’re able to delay when you’ll need to take required minimum distributions from these dollars. You can delay the payout to your 85th birthday.
- You’ll guarantee that you’ll receive an income as long as you live (even if your savings run out).
- You’ll lower your income, meaning lower income taxes and a reduced Medicare premium.
- Diversification of your portfolio.
In 2025, you’re able to use a lifetime limit of $210,000 per taxpayer to purchase a QLAC.
Potential downsides of a QLAC. These annuities may not be as flexible as other insurance products. Once you purchase a QLAC, you will not have access to those funds until you begin taking payments. May QLACs are also irrevocable, so you’re not able to go back on the agreement if you change your mind.
You should consult your financial advisor and your insurance agent to determine if this type of annuity is right for you.
If you would like to discuss your business or personal tax planning, tax preparation, or other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to schedule an appointment at our Exton, PA, office to review your situation.
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About F. Bryan Haarlander, EA, CTRS:
Bryan Haarlander is an IRS-licensed Enrolled Agent and a Certified Tax Resolution Specialist who owns and operates a specialized tax services firm serving clients in the western suburbs of Philadelphia, PA. This includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, and West Chester. We also serve clients in Delaware, New Jersey, New York, and throughout the United States.
Bryan is well-known for his expertise in IRS tax resolution and his book, “How to Resolve Your IRS Tax Debt Problems.”
