Are there any tax implications when purchasing a QLAC?

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.

When must Form 1098-Q be filed with the IRS and furnished to participants?

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.

Who is considered a beneficiary under paragraph (c)(1) or (c)(2) of Q&A-17?

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.

Which types of retirement plans require the filing of Form 1098-Q if they offer a QLAC?

Plans described in section 401(a), 403(a), 403(b), 408 (other than a Roth IRA) or eligible governmental plans under section 457(b).

What happens to a QLAC upon the death of the employee?

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.

What is the deadline for providing a return of premium payment to a participant's beneficiary?

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.

Can a QLAC be purchased outside of an employer-sponsored plan?

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.

What happens to a QLAC if the issuer goes bankrupt?

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.

What is the maximum amount that can be contributed to a QLAC?

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.

What is a qualified longevity annuity contract (QLAC)?

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

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Qualified Longevity Annuity Contract Information

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.

Instructions

Form 1098-Q Instructions - Instructions for Form 1098-Q, Qualifying Longevity Annuity Contract Information

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Form 1098-Q

FAQ

Are there any tax implications when purchasing a QLAC?
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.
When must Form 1098-Q be filed with the IRS and furnished to participants?
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.
Who is considered a beneficiary under paragraph (c)(1) or (c)(2) of Q&A-17?
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.
Which types of retirement plans require the filing of Form 1098-Q if they offer a QLAC?
Plans described in section 401(a), 403(a), 403(b), 408 (other than a Roth IRA) or eligible governmental plans under section 457(b).
What happens to a QLAC upon the death of the employee?
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.
What is the deadline for providing a return of premium payment to a participant's beneficiary?
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.
Can a QLAC be purchased outside of an employer-sponsored plan?
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.
What happens to a QLAC if the issuer goes bankrupt?
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.
What is the maximum amount that can be contributed to a QLAC?
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.
What is a qualified longevity annuity contract (QLAC)?
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.

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Tax forms

Form 1098-Q is one of Tax forms that are documents used to report income, deductions, and tax liability to the relevant tax authority. These forms are an essential part of the tax filing process and are used to ensure individuals and businesses comply with tax laws and accurately calculate their tax obligations.

The specific tax forms required can vary depending on factors such as an individual's filing status, sources of income, and the country's tax laws. However, here are some common types of tax forms:

Individual Income Tax Forms: These forms, such as the 1040 series in the United States, are used by individuals to report their income, claim deductions and credits, and calculate their tax liability.

Business Tax Forms: Businesses, including sole proprietorships, partnerships, corporations, and self-employed individuals, may have to file various forms to report their income, expenses, and taxes owed. Examples include Schedule C (Profit or Loss from Business) and Form 1120 (U.S. Corporation Income Tax Return).

Employment Tax Forms: Employers are required to report employee wages and withhold and remit payroll taxes. Forms such as W-2 (Wage and Tax Statement) and 941 (Employer's Quarterly Federal Tax Return) are used for this purpose.

Investment and Retirement Account Forms: These forms are used to report investment income, capital gains, and losses, as well as contributions and distributions from retirement accounts. Examples include Form 1099-DIV (Dividends and Distributions) and Form 5498 (IRA Contribution Information).

Estate and Gift Tax Forms: When a person passes away or makes significant gifts, specific forms such as Form 706 (United States Estate (and Generation-Skipping Transfer) Tax Return) and Form 709 (United States Gift (and Generation-Skipping Transfer) Tax Return) are used to report and calculate any applicable estate or gift taxes.

It is important to note that tax laws and forms can change over time, so individuals and businesses should consult the relevant tax authority or seek professional tax advice to ensure compliance with the current requirements.

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