What Is a Qualified Joint and Survivor Annuity (QJSA)?
Let me explain what a qualified joint and survivor annuity, or QJSA, really is. It's a setup in qualified retirement plans that delivers lifetime payments to you as the annuitant and then to your spouse, child, or dependent. These rules kick in for money-purchase pension plans, defined benefit plans, and target benefit plans. They can also apply to profit-sharing plans, 401(k)s, and 403(b)s, but only if the plan elects to include them.
Key Takeaways
You need to know that a QJSA ensures lifetime payments go to spouses, children, or dependents. It typically requires at least a 50% survivor annuity. And if you're in poor health, this might not be the best way to invest your retirement assets.
Understanding a Qualified Joint and Survivor Annuity (QJSA)
The plan document for a QJSA usually spells out the annuity payout percentage, but the baseline rule is that the survivor annuity has to be at least 50% and no more than 100% of what you, the participant, receive. If you're unmarried, the annuity follows the incidental benefit rule or the minimum distribution requirements.
As the IRS states, a qualified plan such as a defined benefit plan, money purchase plan, or target benefit plan must offer a QJSA to all married participants as the default benefit unless you and your spouse consent in writing to something else. You can find more details on QJSA rules on the IRS information page, and the governing regulations are in Title 26, Chapter I, Subchapter A, Section 1.401(a)-20 of the Federal Register.
Qualified Joint and Survivor Annuity: Features and Considerations
For married participants, QJSAs come with specific features. Retirement payments arrive at regular intervals, usually monthly, throughout your retirement. After you pass away, the plan continues with a monthly payment to your surviving spouse that's at least 50% of your original benefit.
Like other annuities, a QJSA gives you and your spouse lifetime benefits through these monthly payments, so factor it into your financial planning and retirement income projections. It's not vulnerable to drops from poor stock market performance. Once you start the distributions, you can't change them, and no additional distributions beyond the regular monthly ones are permitted.
If you're in poor health, a QJSA might not be a smart investment for the assets involved. Also, without adjustments for cost-of-living increases, the payments could lose purchasing power over time.
Qualified Joint and Survivor Annuity Example
Consider this scenario: Your employer-sponsored 401(k) plan includes a QJSA that pays you $1,500 monthly starting at age 65. When you die, it provides $1,000 monthly to your spouse until they pass away. You could opt for a lump-sum distribution instead, but only with your spouse's written consent, notarized or witnessed by a plan representative.
There's an exception where the plan can pay a lump sum without consent if it's $5,000 or less. If you get divorced, you might have to treat your ex-spouse as a current spouse under a qualified domestic relations order or the divorce terms. To change the beneficiary for survivor benefits after divorce, contact your plan administrator.
