As a Hopalong Cassidy fan I really enjoy this piece of dialogue: “Do you remember where the marshal’s office is?” Answer: “Down the next block, if someone hasn’t stolen it.”

Talk about hard to find. Most advisers and agents are unfamiliar with qualified longevity annuity contracts (QLACs) and deferred income annuities (DIAs). Most clients have no idea what they are either.

Last summer, the Internal Revenue Service issued new rules that provide tax advantage and eliminate risk. The IRS recognized that longer life expectancy with more years spent in retirement means the real threat of outliving retirement assets. Every retiree must face the challenge of making sure they do not exhaust their nest egg without knowing how long they will live.

A QLAC can be purchased within a qualified retirement plan or an IRA. Only a DIA can be used for this purpose because the IRS does not want there to be a surrender value at death. The aim is to protect against longevity risk of living too long.

At this writing, only one insurance company has a QLAC available for purchase. By first quarter next year, the Life Insurance Marketing and Research Association suggests there will be a number of companies with products available for sale. That does not mean institutional marketing organizations and administrators of business plans will allow it just because a QLAC is available.

QLACs suspend required minimum distribution (RMD) until age 85. RMDs require income be taken from a tax deferred plan by age 70.5. The idea is to prevent anyone from permanently sheltering their retirement assets from taxation. From a taxing perspective, these rules might make sense. From a retirement security standpoint they exacerbate uncertainty.

The regulations identify the ability to convert a Roth to a QLAC. Since an individual Roth does not have an RMD requirement, why convert to a QLAC? An effective strategy for doing so is to qualify for a tax bracket bump by purchasing or converting in small chunks so there is no taxable income until age 85. When income is taken, then it may be possible to bump between brackets. Remember taxes are at the margins of the brackets and not flat across total net income.

Previously, the IRS included QLAC amounts in IRAs and all qualified plans in the RMD calculation. Under the new rules, QLACs are exempt under certain conditions. These are:

•All retirement money in a QLAC cannot be greater than 25 percent of the total value of all pre-tax and post-tax investments

•The 25-percent figure is capped at $125,000 of all IRAs and non-IRAs combined. The $125, 000 will be indexed for inflation in $10,000 multiples

•A QLAC must provide distribution no later than age 85; although the IRS may adjust the age limit in future to reflect mortality changes

•QLAC’s must be a DIA only and cannot include a variable annuity or fixed indexed annuity for the reasons previously explained.

For spouses or partners deferring $250,000 from RMDs and growing for 30-plus years could mean another million dollars of assets to cover retirement gap needs or medical expenses.

Anyone wanting the IRS regulation on QLACs can shoot me an email.

Frederick Saide is founding president of Foundation Insurance Services. Contact him at freds@foundationinsuranceservices.com.