What Is a QLAC? Qualified Longevity Annuity Contracts Explained

A QLAC is not a separate product so much as a tax status. The underlying contract is a deferred income annuity (DIA): a lump sum bought today in exchange for a guaranteed monthly payment that begins years later. When that DIA is purchased with traditional IRA or employer-plan money and meets the requirements in the Treasury regulations, it becomes "qualified," and two things change. The premium stops counting toward your required minimum distributions, and the deferral is allowed to run past the normal RMD age, all the way to 85.

The rules come from Treasury regulations issued in 2014 and expanded by the SECURE 2.0 Act, which Congress passed in December 2022. Before SECURE 2.0, a QLAC premium could not exceed the lesser of $125,000 (indexed) or 25% of the account balance. SECURE 2.0 repealed the 25% test and raised the dollar limit to $200,000, indexed for inflation each year. The indexed limit is $210,000 for 2025 and for 2026. The IRS publishes the current year's figure with its other retirement plan limits every fall.

Takeaway: Think of a QLAC as a DIA with an IRS stamp on it: same guaranteed deferred income, plus permission to keep that money out of your RMD math until age 85.

Required minimum distributions are calculated by dividing your prior year-end account balance by a life expectancy factor from the IRS tables. Every dollar in the balance raises the distribution you must take and the tax you owe on it. A QLAC premium leaves that balance. If you hold $600,000 in a traditional IRA and move $150,000 into a QLAC, your RMDs are computed on $450,000 until the QLAC begins paying.

The relief is a deferral, not an exemption. Once payments start, they are distributions from the IRA and are fully taxable. The tax that would have been due in your seventies is paid in your eighties instead, spread across the payments. For many people that is still worth doing: RMDs on money they do not need can push them into a higher bracket, raise Medicare premiums through the income-related surcharge, and make more of their Social Security taxable.

A QLAC does not satisfy the RMD on the rest of the account. You still take the required amount from your remaining IRA balance each year; only the QLAC portion is set aside.

The regulations are specific, and the insurer's contract language must match them. A contract that misses any of these is treated as an ordinary annuity inside the IRA, and the premium goes right back into the RMD balance.

• Premium limit: total QLAC premiums across all your IRAs and plans may not exceed the indexed limit, which is $210,000 for 2025 and 2026 (SECURE 2.0 set it at $200,000). Excess premiums must be returned by the end of the following year.
• Start date: annuity payments must begin no later than the first day of the month following your 85th birthday.
• Fixed only: the contract cannot be a variable annuity, an indexed annuity, or any contract whose payments depend on investment results.
• No cash value: a QLAC generally cannot have a cash surrender value or a commutation feature. Once bought, it is income, not an account.
• Death benefit: the only permitted death benefits are a return of premium (a lump sum equal to premiums paid less payments received) and a life annuity to a surviving spouse or other beneficiary within the regulation's limits.
• Account type: traditional IRAs, 401(k), 403(b), and governmental 457(b) plans qualify. Roth IRAs do not, because Roth IRAs have no lifetime RMDs to defer.
• Rescission window: SECURE 2.0 allows a contract to permit cancellation for a full refund within 90 days of purchase without disqualifying it.

All three are income annuities from a single premium. They differ in when payments start and in the tax rules that apply.

The buyer who gets the most from a QLAC has three things in common: a traditional IRA or 401(k) balance large enough that RMDs exceed what they spend, good health and a family history that make living into the late eighties plausible, and other assets to live on until the QLAC starts paying. For that person the contract solves two problems at once. It removes up to $210,000 from an RMD calculation they resent, and it guarantees a paycheck for the years when the rest of the portfolio may be tired.

Because the insurer expects to pay for fewer years, deferred income bought at 65 for a start at 80 or 85 costs far less per dollar of monthly income than an immediate annuity. A relatively small premium can buy a meaningful late-life income, which is why planners describe a QLAC as longevity insurance rather than as an investment.

• Good fit: large pre-tax balance, RMDs larger than spending needs, long expected lifespan, other income until the start date.
• Poor fit: needs the money before the start date, health that makes a long deferral unlikely, or a Roth-heavy portfolio with little pre-tax money.

A QLAC gives up liquidity completely. There is no cash value to borrow against and no surrender option, so the premium should be money you are confident you will not need. Inflation is the second concern: a level payment fixed at purchase buys less each year, and most QLACs are level, although some offer a cost-of-living increase for a lower starting payment. Third, the guarantee rests on one insurer for a very long time, potentially thirty years or more, so the company's financial strength ratings and your state guaranty association limit deserve more attention here than with any other annuity.

Finally, the return-of-premium option protects heirs but reduces the monthly payment. Without it, dying before the start date or shortly after means the insurer keeps the premium; that is the price of the higher payout, and it is the tradeoff to decide on deliberately.

Takeaway: Buy a QLAC with money you will not miss, from an insurer you would trust for thirty years, and decide in advance whether heirs or income matter more.

A QLAC is bought through a licensed annuity agent, and the premium moves by direct transfer from your IRA custodian or plan to the insurer, so the money is never distributed to you and no tax is triggered. Most buyers open a new traditional IRA with the insurer for the contract, then transfer the premium into it. If the money is in a 401(k), check whether the plan offers a QLAC option; if not, a rollover to an IRA first is the usual path.

Before signing, confirm four items in writing: the start date, the premium total across every contract you own, whether the contract includes a return-of-premium death benefit, and the insurer's financial strength rating. A specialist can quote several carriers for the same start age and premium; the monthly payments can differ noticeably for identical terms.

Because the premium came from pre-tax money, every QLAC payment is taxable as ordinary income in the year received, and the insurer reports it on Form 1099-R. The payments count toward the RMD for the IRA that holds the contract in the year they are paid. If the contract has a return-of-premium death benefit and you die before receiving the full premium back, the lump sum paid to your beneficiary is also taxable income to them, and it must be taken by the end of the year following your death.

Because payments start late, they land in years when other income is often lower, which is the tax planning point of the design. It is worth running the numbers with a tax professional, because a large QLAC starting at 85 can concentrate income in a few years rather than spreading it.