What's a QLAC?
Gary Gamma: Well, there's an interesting question here from Gene in Michigan, "What are QLACs?" which is a qualified longevity annuity contract, although it probably needs further definition for some in the audience.
Tim Holmes: That's great. So a QLAC is a product that came as a result of an IRS ruling about longevity annuities. So I talked earlier about those fixed income annuities and the one extreme example was when you take payments at an advanced age. So that's a longevity annuity.
And what the IRS ruling said was if you use qualified assets to fund those annuities up to certain limits, you don't need to include that amount in your RMD calculation. So if I take $100,000 when I'm 65 and I buy a QLAC, when I'm 70½ that $100,000 is excluded from any RMD calculation. So it made longevity annuities, particularly funded by qualified assets, that much more attractive.
Gary Gamma: Can you define what an RMD is?
Tim Holmes: Sure. A required minimum distribution applies to qualified assets, your IRA, and your 401(k). When you reach the age 70½, that's when you need to begin to withdraw funds from those portfolios and also pay taxes on those
Steve Utkus: That's just another reminder, I mean, just like hearing you say QLAC, which I happen to know what it means, but this is a reminder of the choice and complexity issue in this marketplace and the need for both research and information and guidance to make these choices.
There's a certain level of technical knowledge, obviously, that we share but a consumer, an investor who wants to make these choices actually has to learn a bit and invest the time and energy to learn before making these decisions. And the QLAC definition just reminded me that while I understood everything that Tim said, I can understand that for many investors it's a relatively new concept and evaluating that will take a lot of time and energy.
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