QLAC and basis of traditional IRA

Submitted by Chester Nowicki on Wed, 2019-03-27 23:13

When a QLAC is purchased in a traditional IRA that has a non-zero basis, does that basis distribute proportionately to the cost of the QLAC and to the balance of the assets remaining in the IRA?

As an example, suppose the IRA was valued at $520,000 on the prior 12/31 before the purchase of the QLAC, which was procured with $130,000 from funds in the IRA. and the total basis at this time is $3,000. Is the basis apportioned by 130,000/520,000 towards a basis in the QLAC, and (520,000 – 130,000)/520,000 remaining in the IRA?

RMDs are reduced by removal of the QLAC purchase price from the market value of the IRA, but it would appear that calculation of the taxable and non-taxable portions of an RMD and the remaining value(s) of the basis hinges on this basis question.



Submitted by Alan - IRA critic on Thu, 2019-03-28 00:29

  • Strangely enough, the IRS has never issued clear guidance for determining basis application for annuitized accounts. The Form 8606 Inst infer that every IRA has a year end value from which to determine the non taxable portion of a distribution, but they provide no guidance on how to determine such value on an annuitized account purchased from an insurance company. This question takes on the elephant in the room description the longer it remains unanswered. But once a taxpayer improvises, they should be consistent from year to year in case the IRS ever addresses the issue and some accounting needs to be done.


Add new comment

Log in or register to post comments