The first longevity annuity created specifically to meet the new QLAC federal regulations has been introduced by AIG. The company’s American General Life Insurance Company created the American Pathway Deferred Income Annuity to be eligible as a qualifying QLAC in traditional IRA’s. This information comes from LifeHealthPro’s “AIG jumps in with longevity annuity for IRAs,” by Marlene Y. Satter. The IRS changed the requirements for using these annuities in 401k and other retirement plans on July 2. It’s no surprise that the first products introduced are those that can be used with IRAs, soon to be followed by products designed specifically for 401ks and other retirement plans.
The main issue with using deferred income annuities in retirement plans before was the required minimum distribution rule. People were forced to start receiving income payments at age 70 1/2, sooner than many people choose to take deferred income annuity income. These QLACs, or deferred income annuities, typically defer income until age 80 or beyond. Deferring income payments much later in life makes for income payments that are significantly higher than if they had been taken at age 70. AIG’s American Pathway Deferred Income Annuity is the first product out of the gate to be used as a QLAC in retirement accounts, but many insurers are likely to follow them and introduce new products soon.
This particular deferred income annuity product offers two options in the case that the person who owns the annuity dies before receiving their income payments. You can receive higher income payments by opting for no death benefits or you can pay more for a return of premium death benefit. If you choose this second option, no interest will be included in the death benefits to your heirs. You also pay more for adding on the death benefit. This might be worthwhile to those worried about “losing” their annuity money if they die earlier in life than they anticipated. There are a couple of limitations on these QLAC products. You cannot use more than $125,000 or 25% of the total value of a qualified retirement plan to purchase a QLAC, whichever amount is higher.
If you have any questions about AIG’s American Pathway Deferred Income Annuity or the use of deferred income annuity products in qualified retirement plans, an Annuity FYI expert would be happy to provide answers.