Question: \u201cI will turn 73 this month. I have two IRAs, a Roth, a 401(k), and two 403(b)\u2019s, totaling over $1 million. I am fortunate to have a decent pension, and even with the Windfall Elimination Provision, I can still get a small sum after my Medicare B & D withholdings. After taxes from retirement, my monthly income is approximately $7,200 a month. I have a mortgage of just under $25,000. I rent out this property for six months a year. I still work part-time as a substitute teacher a couple of days a week and have a gig economy job that pays roughly $10,000 a year. I lease a car at $388 a month (I write it off as I file a Schedule C).<\/p>\n
Unless something unforeseen happens, I don\u2019t need the money from these plans, but I know I have to take it. The only things certain in life are death and taxes, but I\u2019d like to kick the can down the road and use $100,000 from one of the IRAs to fund a QLAC to reduce my RMDs. Do you think this is a smart move? What kind of financial adviser should I hire to help me execute this?\u201d (Looking for a financial adviser too? You can use this free tool from our partner SmartAsset that can match you to a financial adviser<\/a>, as well as sites like CFP Board and NAPFA.)<\/p>\n Answer: There are a few things to tackle here. \u201cFirst, that lease is probably not tax-deductible. You probably used it outside of your gig economy job, so only a portion is deductible. If the gig economy job is considered a taxi for hire, like Uber or Lyft, you must take the standard mileage deduction. In short, your taxes are probably wrong and you want to fix them before the IRS visits,\u201d says Robert Persichitte, a certified financial planner at Delagify. <\/p>\n Second, for the QLAC, or qualified longevity annuity contract, you\u2019re trying to solve a tax problem that doesn\u2019t exist yet, says Persichitte. \u201cBefore considering such an expensive option, consider your objectives and why that makes sense. Generally speaking, good tax planning aims to reduce your lifetime taxes. One of the options is Roth conversions, but there are a whole bunch of other strategies. If you aren\u2019t ready to pay an adviser to manage your assets, you can find someone who is project-based or fee-for-service based. Most CPAs can run the numbers for you and charge less than an asset manager, just make sure if you go that route that your investments are appropriate for your needs,\u201d says Persichitte.<\/p>\n QLACs can be helpful in terms of providing steady income later in retirement as they\u2019re not subject to market fluctuations and once you begin receiving payments, you\u2019ll receive them as long as you live. The tax impact of QLACs is another benefit as they lower the overall balance of your account which subjects you to lower RMDs and a lower tax bracket. On the other hand, QLACs lack flexibility that other products offer and they\u2019re often irrevocable, meaning once you decide to buy one, you\u2019ll be stuck with it forever. <\/p>\n Have an issue with your financial planner or looking for a new one? Email questions or concerns to picks@marketwatch.com<\/a>.<\/p>\n Everything you\u2019ve said indicates that you won\u2019t need these deferred income retirement accounts. \u201cStill, you should always consider that perhaps in the future, you may have unexpected expenses, such as long-term care costs, which can be significant,\u201d says Alonso Rodriguez Segarra, a certified financial planner at Advise Financial. \u201cSuppose you gave your money to an insurance company by acquiring a QLAC. In that case, you would no longer have the independence to use that money for it. Likewise, it would help to remember that many of the annuities are famous for their high costs, which are really complex to calculate when you do not have the help of a financial specialist.\u201d<\/p>\n