IRS Modifies Required Minimum Distribution Rules to Permit Purchase of Longevity Annuities in Defined Contribution Plans


The IRS has issued final regulations modifying the required minimum distribution rules that apply to defined contribution retirement plans to accommodate the purchase of annuities known as qualifying longevity annuity contracts (QLACs). Although defined contribution plans require minimum distributions on April 1 of the calendar year after the retiree turns 70 ½, QLACs permit tax deferral of account balances up to the first of the month following the retiree’s 85th birthday.

The final regulations, which are substantially similar to the proposed regulations issued in February 2012, permit defined contribution plans to collect “premiums” for QLACs by reducing the account balances that are used to calculate the required minimum distributions after age 70 ½ by the lesser of (i) $125,000 (to be adjusted for inflation every year in increments of $10,000); or (ii) 25% of the account balance. The QLAC premiums are annuitized for distribution no later than age 85. QLACs are also permitted, but not required, to offer a “return of premium” feature, which would permit the beneficiary of a QLAC annuitant to receive any excess premiums that were not distributed before the annuitant’s death.

QLACs must also comply with certain other rules identified in the guidance. Among other requirements, QLACs may not provide increasing payments after the required distribution date (which is applicable to all annuity payments) or contain cash or surrender value, and the contract language must explicitly state that the annuity is intended to be a QLAC. Under transitional relief provided in the guidance, annuities issued before January 1, 2016 that are intended to be QLACs but not explicitly identified as such in the contract language must comply with this requirement (for example, by issuing a rider or endorsement to the contract) no later than December 31, 2016. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Franczek Radelet P.C. | Attorney Advertising

Written by:


Franczek Radelet P.C. on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:

Sign up to create your digest using LinkedIn*

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.

Already signed up? Log in here

*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.