429. What is a qualified longevity annuity contract (QLAC)? What steps has the IRS taken to encourage the purchase of QLACs?Alexis Longrcline212014-09-18T15:40:00Z2014-09-18T15:40:00Z34732701Summit Business Media226316814429.01. What is a qualified longevity annuity contract (QLAC)? What steps has the IRS taken to encourage the purchase of QLACs?A qualified longevity annuity contract (QLAC) is a type of longevity annuity that meets certain IRS requirements that have been proposed in order to encourage the purchase of annuity products with retirement account assets.2012-13 IRB 598. A QLAC is a type of deferred annuity product that is usually purchased before retirement, but for which payouts are delayed until the taxpayer reaches old age—typically payouts begin around age eighty or eighty-five. In the usual case, if an annuity is held in a retirement plan, the value of that annuity is included in determining the amount of the account owner’s required minimum distributions.Treas. Reg. §1.401(a)(9)-6, A-12. One of the primary benefits of a QLAC is that the IRS’ proposed rules allow the value of the QLAC to be excluded from the account value for purposes of calculating RMDs.See IRC Sec. 401(a)(9). Because including the value of a QLAC in determining RMDs could result in the taxpayer being forced to begin annuity payouts earlier than anticipated if the value of his or her other retirement accounts has been depleted, the IRS determined that excluding the value from the RMD calculation furthers the purpose of providing taxpayers with predictable retirement income late in life.2012-13 IRB 598. The amount that a taxpayer can invest in a QLAC and exclude from the RMD calculation is limited, however, to the lesser of $100125,000 (as adjusted for inflation beginning in after 2014) or 25 percent% of the taxpayer’s retirement account assetsvalue.2012-13 IRB 598. The final regulations provide that the 25 percent limit is based upon the account value as it exists on the last valuation date before the date upon which premiums for the annuity contract are paid. This value is increased to account for contributions made during the period that begins after the valuation date and ends before the date the premium is paid. The account value is decreased to account for distributions taken from the account during this same period. Treas. Reg. §1.401(a)(9)-6, A-17(d)(1)(iii). To qualify as a QLAC, the annuity contract must also provide that annuity payouts will begin no later than the date first day of the month following the month upon in which the taxpayer reaches age eighty-five. Treas. Reg. §1.401(a)(9)-6, A-17(a). Variable annuities, indexed annuities and similar products may not qualify as QLACs unless the IRS specifically releases guidance providing otherwise. Treas. Reg. §1.401(a)(9)-6, A-17(a)(7). Further, a QLAC cannot provide for any commutation benefit, cash surrender value or similar benefit. Treas. Reg. §1.401(a)(9)-6, A-17(a)(4).429.02. What types of retirement accounts can hold a qualified longevity annuity contract (QLAC)? A qualified longevity annuity contracts (QLAC, see Q[429.01]) may be held in a qualified defined contribution plan (such as a 401(k) plan), IRC Section 403 plans, traditional IRAs and individual retirement annuities under Section 408, and eligible IRC Section 457 governmental plans. Treas. Reg. §1.401(a)(9)-6, A-17(b)(2). An annuity purchased under a Roth IRA cannot quality as a QLAC. If a QLAC is purchased under a traditional IRA or qualified plan that is later rolled over or converted to a Roth IRA, the annuity will not be treated as a QLAC after the date of the rollover or conversion. Treas. Reg. §1.401(a)(9)-6, A-17(d)(3)(ii).