Rev. December 2019
Form 1098-Q is used by issuers to report annuity payments made from a Qualified Longevity Annuity Contract (QLAC). The form must be furnished to the participant and the IRS by January 31 following the calendar year in which the annuity payments were made. This instruction sheet explains how to complete Form 1098-Q.
When an employee contributes to a QLAC, the contribution is made on a pre-tax basis. This means that the employee does not have to pay income tax on the contribution amount in the year it is made. However, when the annuity contract begins paying out income, it may be subject to income tax as well as taxes such as estate tax.
Form 1098-Q must be filed with the IRS and furnished to participants annually, beginning with the year in which premiums for a contract are first paid.
A designated beneficiary, as defined in section 401(a)(9)-8, may be a beneficiary under paragraph (c)(1) or (c)(2) of Q&A-17.
Plans described in section 401(a), 403(a), 403(b), 408 (other than a Roth IRA) or eligible governmental plans under section 457(b).
Upon the death of an employee, their designated beneficiary (if any) will receive the proceeds from the QLAC. If there is no designated beneficiary, the deceased employee's estate will be the beneficiary. The beneficiary may elect to receive the funds as a lump sum or as periodic payments over their lifetime. Additionally, if the employee has not yet reached their annuity starting date, the QLAC will provide for a return of premiums.
The return of premium payment must be paid no later than the end of the calendar year following the calendar year in which the employee dies.
Yes, a QLAC can be purchased outside of an employer-sponsored plan. An individual can purchase a QLAC directly from an insurance company or financial institution. However, the purchase must meet the requirements outlined in section 401(a)(9) of the Internal Revenue Code to qualify as a QLAC.
If an insurance company that issued a QLAC goes bankrupt, the employee's contributions and any earnings on those contributions are generally protected. The Employee Retirement Income Security Act of 1974 (ERISA) requires that employee contributions in a qualified retirement plan be held in a separate account from employer contributions. This means that the money is usually ring-fenced and should not be affected by the issuer's bankruptcy.
The maximum amount that can be contributed to a QLAC depends on various factors, such as the employee's age and the type of plan in which they participate. The Internal Revenue Service sets annual limits based on the plan year, which generally begins on January 1st and ends on December 31st. For example, for tax year 2022, the maximum contribution limit for a QLAC is $140,000.
A QLAC is an annuity contract that meets the requirements of section 401(a)(9) of the Internal Revenue Code. It allows employees to make additional pre-tax contributions to their 401(a), 403(b), or 457(b) plans, and the funds are used to purchase an annuity contract that begins paying a guaranteed income stream at a future date, such as age 80 or 85. The QLAC must meet certain requirements, including being issued by an insurance company or other financial institution, having a minimum interest rate, and providing for a return of premiums in the event of death before the annuity starting date.
Form 1098-Q is one of Tax forms that are documents used to report information related to taxes to the relevant tax authority. There are various types of tax forms, including federal, state, and local tax forms, which can vary depending on the taxpayer's circumstances and location.
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