This year, the IRS adopted final regulations which allow an IRA or 401K account holder to direct 25% of the qualified funds into a new structure called a Qualified Longevity Annuity Contract (QLAC). This is a deferred-income annuity contract purchased from an insurance company with qualified funds. The portion of qualified assets used to purchase the QLAC will not be subject to the Required Minimum Distribution (RMD) rules. The QLAC will begin paying an income stream on a set later date which must be prior to age 85. http://www.irs.gov/irb/2014-30_IRB/ar07.html
This may be a terrific tool for certain retirees. Keep in mind, however, that if your spouse ever requires nursing home care and you are thinking about applying for Medicaid, a QLAC is not a “Medicaid compliant annuity” which can be excluded from consideration.
There is a strict resource limit for Medicaid eligibility. Federal and state Medicaid law treat annuities as available resources if they can be commuted, accelerated, modified or revoked. Numerous restrictions and requirements must be built into an annuity contract for it to not be treated as a resource. This was the issue in my successful case M.W. v. DMAHS and Union County Board of Social Services (January 2014) and the federal cases we relied upon.
To discuss your personal situation and develop an estate plan or a plan for Medicaid eligibility using annuities or other arrangements, call us at 732-382-6070.