How to Report Qualified Longevity Annuity Contracts

The required minimum distribution (RMD) rules require participants to start taking distributions when they turn age 70½. Treasury and the IRS have developed a new concept to enable retirees to preserve some of their retirement assets and to protect them from outliving their assets – the qualified longevity annuity contract or QLAC. At the same time, QLACS will help retirees to avoid limiting their retirement spending unnecessarily.

QLAC-eligible plans

A QLAC is a deferred annuity that will start paying benefits for life at an advanced age (up to 85 under IRS rules). Participants in defined contribution (DC) retirement plans, as well as owners of IRAs, can use a portion of their DC or IRA account to purchase a QLAC. DC retirement plans include a plan, annuity or account described in Code Secs. 401(a), 403(a), 403(b), 408 (other than a Roth IRA), and 457(b).

RMD relief

In calculating their RMD, which is based on their account balance, participants can deduct the price of the QLAC from their account. Without this relief, the RMD would be inflated to include the funds used to purchase the QLAC.

QLAC reporting

QLACs became available in 2014. The IRS has issued new Form 1098-Q, Qualifying Longevity Annuity Contract Information, for issuers of QLACs to report the contracts to the IRS and to the contract purchaser. Issuers must provide the form to the purchaser for the first year in which QLAC premiums are paid, and continue to provide the form until the earlier of the participant’s death or attaining age 85.

Form 1098-Q requires issuers to identify themselves, the participant, the plan, and the plan sponsor. Issuers also must provide the QLAC’s starting date, the annuity amount if payments have not begun, the total premiums, the premiums paid in 2014, the QLAC’s fair market value at the end of the year, and indicate whether the starting date may be accelerated. The IRS also encouraged issuers to assign an account number to each QLAC, and requires an account number if the participant has more than one QLAC.

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