IRS to Release New Form to Report Qualifying Longevity Annuity Contracts in IRAs

Tuesday, October 21, 2014

By Joe Cicchinelli, IRA Technical Expert
Follow on Twitter: @JoeCiccEdSlott

The IRS announced that there will be a new form used to report qualifying longevity annuity contracts (QLACs) held in IRAs and other retirement plans. QLACs can be bought inside your IRA, 401(k), 403(b) and governmental 457(b) plan. The new form is IRS Form 5498-A, Qualified Longevity Annuity Contract Information. It will be used by IRA custodians and company retirement plans to report QLAC information to the IRS and to you as the IRA owner. It has not yet been released by the IRS.

The IRS sometimes releases drafts of forms beforehand so taxpayers and IRA custodians can see what may be changing for next year. It should be noted that information in these drafts might be different from the final versions of the IRS forms when they are officially released. The IRS announced the new form on October 10, 2014 in the “What’s New” section of a draft of the 2015 General Instructions for Certain information Returns (1097, 1098, 1099, 3921, 3922, 5498 and W-2G). Here’s a link to the draft.

In early July 2014, the IRS issued final regulations for QLACs. Those regulations require insurance companies that issue QLACs to file an annual report to the IRS and to provide you with a statement if you invest in a QLAC.

A QLAC is a fixed annuity inside an IRA that allows you to delay taking required minimum distributions (RMDs) after age 70 ½ and guarantees income (payments from the annuity) for life on part of your IRA balance. The value of the QLAC is not counted when figuring your RMD for the year. This will help increase the income stream the annuity will pay you in the future, while leaving your other IRA money alone.

QLAC distributions have to start no later than when you turn age 85. However, you can’t invest your entire IRA or plan balance in a QLAC. Specifically, you can buy a QLAC with the smaller of 25% of your retirement money or $125,000.

The IRS regulations don’t require insurance companies to offer QLACs. Check with your IRA custodian or company plan to see if they offer QLACs as a retirement plan investment. Better yet, talk to an Ed Slott educated advisor to see if buying a QLAC makes sense for you.

And better yet, read up on our complete QLAC coverage here.

 

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