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Your Wealth Matters - Did you know... There is a New Type of Retirement Income Annuity Available?

Recent IRS regulations have created a new type of retirement income annuity. On July 1, 2014, the IRS related the final regulations for what will be known as "Qualifying Longevity Annuity Contracts" (QLACs). Retirees will be able to purchase an annuity containing the "qualifying features," whose market value can be excluded from the fair market value used to calculate the annual Required Minimum Distribution (RMD).

You may already realize that once an individual turns age 70 ½, he or she, is required to distribute a minimum amount from their qualified retirement accounts each year going forward. The amount to be distributed is determined by using the prior year ending value of all of your retirement accounts and the IRS Uniform Lifetime Table (excluding Roth IRAs, which do not have this RMD requirement, and retirement accounts held through employer retirement plans. In this case, the RMD is determined separately and subject to the same distribution calculation and deadlines.) The result represents the minimum amount that must be distributed each year, which is subject to ordinary income taxation.

By excluding the portion of your retirement account invested in a QLAC, which is limited to the "lessor" of $125,000 or 25% of your combined retirement accounts, you are receiving a lower minimum amount each year and, presumably, extending the life of your retirement account(s) to a much later age. According to the regulation, distributions for QLACs can be deferred up to age 85.

Some of the other conditions associated with this form of retirement annuity include the following:

• Payments from QLACs will have to begin no later than the first day of the month after the account owner turns 85.
• The 25% limit applies on an individual plan basis, except for IRAs, but the $125,000 cap is a cumulative limit for all QLACs in all retirement accounts.
• Each spouse is eligible and subject to the same limits and conditions.
• The annuity cannot be a Variable Annuity or Equity-Indexed contract.
• QLACs cannot offer ANY cash surrender value!  Therefore, if you think you're interested in a QLAC, make sure you don't need the money soon.

There are death benefit options associated with this form of annuity, but not every insurance company will be offering the same terms. Care needs to be taken when evaluating these annuities for purchase.  Should you have any additional questions regarding this new retirement income planning "tool," please give me a call.

Michael D. Puckett, AIFA®, CFP®is President of CFG Wealth Management Services, Inc., an independent Registered Investment Advisor, offering integrated advice and asset management services to individuals, families and institutions seeking objective advice, disciplined processes and fiduciary level accountability in the management of their financial and investment affairs. He and his company has served RSA and its members for more than 20 years. For more information on CFG Wealth Management Services, call 888-234-9674 or visit www.cfgwms.com. Questions? Contact Michael Puckett, AIFA®, CFP®, CFG Wealth Management, 888-234-9674 or email mpuckett@cfgwms.com.