QLACs Explained: Guaranteed Income Later in Retirement

What Is a QLAC?

A Qualified Longevity Annuity Contract (QLAC) is a type of deferred income annuity. "Deferred" means you buy it now but don't start receiving payments until a future date you choose — as late as age 85.

QLACs can only be funded with money from a traditional IRA or an eligible employer-sponsored plan such as a 401(k), 403(b), or governmental 457(b). The purchase is made as a tax-free transfer, not a taxable withdrawal.

The U.S. Treasury Department created the QLAC rule in 2014 to solve a specific problem: before that rule, using IRA money to buy a deferred income annuity was complicated by required minimum distribution (RMD) rules. Now, the amount you invest in a QLAC is removed from future RMD calculations entirely.

How RMDs Connect to QLACs

When you turn 73, the IRS requires you to start taking yearly withdrawals — called required minimum distributions (RMDs) — from traditional IRAs and 401(k)s. These withdrawals count as taxable income.

If you don't need your full RMD to cover current living expenses, those forced withdrawals can feel wasteful or even push you into a higher tax bracket.

A QLAC offers a solution. The money you move into a QLAC is no longer counted when your RMD is calculated. That means a smaller RMD each year during the deferral period, and guaranteed income waiting for you later — when costs like health care tend to rise.

How Much Can You Put Into a QLAC?

The rules were simplified by the SECURE Act 2.0. The maximum lifetime amount you can invest in a QLAC is $210,000 for 2026, with future adjustments for inflation.

Here's how that works in practice:

• If your traditional IRA has a total balance of $500,000, you can invest up to $210,000 in a QLAC.
• If you previously invested $125,000 in a QLAC, you may be able to add another $85,000 to reach the current limit.

Some employer-sponsored plans like 401(k)s may also offer QLAC options. Check with your employer or plan sponsor for the rules specific to your plan.

A Real-World Example

Consider a woman approaching age 73 who does not need her full RMD to cover current expenses. She invests $210,000 from her traditional IRA into a QLAC at age 70 and chooses an income start date of age 80.

During the deferral period (ages 70–80), she:

• Pays no RMDs on the $210,000 invested in the QLAC
• Relies on Social Security, RMDs from her remaining IRA balance, and other income to cover expenses

Starting at age 80, she receives $40,440 per year in guaranteed lifetime income. If she lives to age 95, her total payments would reach approximately $606,599 — and payments continue for as long as she lives.

Note: Payment amounts are pre-tax and will vary based on rates at the time of purchase. Rates change daily.

Key Options to Consider When Buying a QLAC

Single or joint life? If you are married, a joint contract adds your spouse. Payments continue as long as either of you is alive. A joint contract may start with slightly lower payments than a single-life contract, but it covers two lives — which can mean a longer period of income.

When should income start? The right start date depends on your overall retirement income plan. A few examples:

• A couple in their late 60s worried about rising health costs might set income to begin at age 80 or 85.
• A 70-year-old retiree whose other income stream ends at age 75 (such as part-time work or proceeds from a business sale) might start QLAC income at age 76 to fill that gap.
• A couple at 65 comfortable drawing from investments early in retirement, but concerned about running out of money over 30+ years, might choose a QLAC starting at age 85 as a safety net.

The longer the deferral period, the higher the guaranteed payments will be.

Is a QLAC Right for You?

A QLAC is not the right fit for everyone. It works best for people who:

• Have more IRA or 401(k) savings than they need for current expenses
• Want to reduce RMDs and the taxes that come with them
• Are concerned about outliving their savings
• Want guaranteed income to cover rising costs — especially health care — later in retirement

Experts suggest thinking about a QLAC before you reach your RMD age of 73, as part of your overall withdrawal strategy. While you can purchase a QLAC after age 73, planning ahead gives you more flexibility.

A QLAC should be one piece of a broader income plan — ideally alongside Social Security, a pension, or other lifetime income sources — to make sure essential expenses like food, housing, and health care are covered throughout retirement.

Always confirm details and eligibility with a qualified financial professional or your plan administrator before making a decision.