QLAC Purchase

Submitted by Keith Kim on Wed, 2018-10-03 15:47

Hello,
I have a 66-yrold client requesting to purchase a QLAC on 10/03/18.
He’s planning to fund it with portion ($130K) of his IRA of $800k. And that IRA was a rollover from his 401k, which happened in 2018.
I have my colleagues saying two opposite things:
1. QLAC cannot be open because he didn’t have any “IRA” balance as of 12/31/2017, because how maximum QLAC contribution is determined.
2. QLAC still can be open because ALL qualified accounts are considered in calculating the max. therefore, when asked about 2017 Year End balance, we can use the 401k balance.
3. QLAC can be open because his CURRENT IRA account is what’s considered.

can he open a QLAC for this year at all? and if so, what amount can be used to determine the max?

Thank you so much!



Submitted by David Mertz on Wed, 2018-10-03 16:00

The 25% limit is determined under Treas. Reg. 1.401(a)(9)-6 Q&A 17(d)(1)(iii):

Application of 25-percent limit. For purposes of the 25-percent limit under paragraph (b)(3) of this A-17, an employee’s account balance on the date on which premiums for a contract are paid is the account balance as of the last valuation date preceding the date of the premium payment, adjusted as follows. The account balance is increased for contributions allocated to the account during the period that begins after the valuation date and ends before the date the premium is paid and decreased for distributions made from the account during that period.

Submitted by Alan - IRA critic on Wed, 2018-10-03 17:48

  • DMx, the IRS and other sites all indicate that 130k is the new dollar limit. That does not appear to comply with the following IRS Reg. Do you know why the first adjustment can be less than 10k?
  • (2)Dollar and age limitations subject to adjustments -(i)Dollar limitation. In the case of calendar years beginning on or after January 1, 2015, the $125,000 amount under paragraph (b)(2)(i) of this A-17 will be adjusted at the same time and in the same manner as the limits are adjusted under section 415(d), except that the base period shall be the calendar quarter beginning July 1, 2013, and any increase under this paragraph (d)(2)(i) that is not a multiple of $10,000 will be rounded to the next lowest multiple of $10,000.

Submitted by David Mertz on Wed, 2018-10-03 18:51

I agree, a $130,000 dollar limitation seems to be in disagreement with (d)(2)(i).  The *increase* to $125,000 is supposed to be a multiple of $10,000.  It seems that the IRS has mistakenly interpreted (d)(2)(i) as saying that the *increased limit* shall  be a multiple of $10,000.  I don’t see anything later than Treasury Decision 9673 that discusses the method of adjustment established in (d)(2)(i).

Submitted by David Mertz on Wed, 2018-10-03 19:08

Note that (d)(2)(i) refers to the method used in 415(d).  In 415(d) it doesn’t matter which interpretation is used since $160,000 is a multiple of $5,000, so the result is the same either way.  The same would have been true for (d)(2)(i) if the originally proposed dollar limit of $100,000 or the originally proposed step size of $25,000 was retained since in either case the initial dollar limit would have been a multiple of the step size.

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