What Is a QLAC? Qualified Longevity Annuity Contracts Explained

QLAC: A Tax-Efficient Longevity Tool

A Qualified Longevity Annuity Contract (QLAC) is a special type of deferred income annuity that sits inside a qualified retirement account (IRA, 401k) and is specifically designed to reduce RMDs while guaranteeing income in very late retirement.

How QLACs Work

• You use IRA or 401(k) funds to purchase the QLAC
• The money used is excluded from your RMD calculation until income starts
• Income must start by age 85 (changed from prior rules)
• QLAC purchase limit: the lesser of $200,000 or 25% of your IRA balance (as of 2023 SECURE Act 2.0 changes)

The RMD Reduction Benefit

RMDs are calculated based on your retirement account balance. Money in a QLAC is excluded from that calculation until income begins. Example:

• IRA balance: $800,000
• QLAC purchase: $200,000
• RMD-eligible balance: $600,000 (not $800,000)
• RMD reduction at age 73 (at ~3.7% RMD rate): saves ~$7,400 in forced distributions — and taxes

Who Is a QLAC Best For?

• People with large IRAs who don’t need all their RMDs and want to reduce the tax hit
• People worried about outliving their money well into their 80s and 90s
• Those who want very high income payments starting at 80–85 (deferral = much higher payments)

QLAC vs. Standard DIA

A QLAC must be inside a qualified account and has the RMD exclusion benefit. A standard Deferred Income Annuity (DIA) can be inside or outside a retirement account but doesn’t have the QLAC’s special RMD rules.

Caution

QLACs are illiquid. You cannot access the principal before income starts. They’re appropriate only for money you’re certain you won’t need until your 80s.