How To Purchase a QLAC With 401(k) Funds

How To Purchase a QLAC With 401(k) Funds

You have a few options if money is held in your company’s 401(k) plan and you’d like to purchase a QLAC.

Option 1 – Rollover into an IRA

If you are able to rollover your 401(k) into an IRA, you can purchase a QLAC within your IRA. This is often an attractive option for individuals that do not have access to a QLAC through their company’s 401(k). It can also be an appealing option for men, who may receive a better price because of the unisex pricing rules that apply in 401(k) plans.

There are some things to consider, however, with this approach. First, keep in mind that in order to purchase a $125,000 QLAC, you’d need to rollover $500,000 into an IRA, not just the $125,000 that you are using to purchase the QLAC.

Also, keep in mind that if you rollover your 401(k), you’ll have to wait until the following year to make the QLAC purchase. This is because the 25% cap is based on your prior year end IRA balance.

Want to see quotes for QLACs purchased in your IRA? Just click here.

Option 2 – Purchase in your 401(k)

If you’re like most Americans, your company’s 401(k) plan does not currently offer a QLAC. But if you’re in the fortunate minority, you can purchase inside the 401(k). The advantage to this approach if you’re a woman is you will likely receive better pricing than you would if you purchased a similar QLAC through a retail channel. For men, you might receive better pricing through your IRA.

More About Unisex Pricing: There’s a federal law governing 401(k) plans that states that men and women cannot receive different pricing or terms for the same benefit. This means that annuities have unisex pricing. This is very different from the retail annuity market, where men receive higher payouts than women because male life expectancy is, on average, shorter. What does this mean for you? If you’re a woman, you’ll probably get better pricing by purchasing a QLAC in your 401(k) than you might receive in the annuity market. For a man, it means you might receive better pricing for a product in your IRA rather than your 401(k).

Whether a man or a woman, we recommend that you look at comparable pricing on a platform like Abaris’ before making a 401(k) purchase. Since product selection is still more limited for QLACs that can be purchased in a 401(k), make sure that the product you buy in a 401(k) has any features (ex. the ability to accelerate payments) that are important to you.

Option 3 – If not offered in your 401(k) and you’d like to purchase it there (rather than through an IRA), ask them to add it by filling out this brief form.

If you provide us this information, we can contact your 401(k) plan provider on your behalf. Sometimes, your company (the plan sponsor) and the people running your 401(k) plan (the plan administrator) can be convinced to offer a new product if there is enough customer demand.