Qualified Longevity Annuity Contract (QLAC)

A Qualified Longevity Annuity Contract (QLAC) is a special type of deferred income annuity funded with retirement account money that can delay required minimum distributions (RMDs) and provide guaranteed lifetime income later in life, often starting as late as age 85.

QLACs are designed to protect against longevity risk — the possibility of outliving your retirement savings — while also offering tax advantages for retirees who don’t need income immediately.

What Is a QLAC?

A QLAC is a deferred income annuity purchased inside certain tax-advantaged retirement accounts, such as traditional IRAs or qualified employer plans.

Unlike most annuities, a QLAC is specifically recognized by the IRS and allows you to exclude a portion of your retirement savings from RMD calculations until income payments begin.

In simple terms:

You give an insurance company a lump sum today, and in return, it guarantees monthly income starting later in life — potentially for as long as you live.

How a QLAC Works

A QLAC works by postponing income and required withdrawals until a future date you choose.

Here’s the basic process:

1. You use funds from a traditional IRA or qualified retirement plan to purchase a QLAC.
2. Those funds are removed from your account balance for RMD purposes.
3. You choose a future income start date, no later than age 85.
4. When payments begin, the annuity pays guaranteed income for life (or for a set period, depending on options chosen).

Because income is delayed, QLAC payments are typically higher than annuities that start immediately.

How QLACs Affect Required Minimum Distributions (RMDs)

One of the most important features of a QLAC is its ability to reduce or delay RMDs.

Normally, once you reach RMD age, you must begin taking taxable withdrawals from your retirement accounts each year. Funds used to buy a QLAC are excluded from this calculation until payments begin.

Why this matters: Lower RMDs can mean lower taxable income, which may help reduce taxes on Social Security benefits and Medicare premiums.

QLAC Contribution Limits (Current Rules)

The IRS limits how much you can invest in a QLAC.

As of current regulations:

• You can allocate up to $200,000 into QLACs across all eligible retirement accounts
• This limit applies in total, not per account
• QLACs must be funded with pre-tax retirement dollars (such as traditional IRAs or qualified plans)

These limits are designed to ensure QLACs supplement retirement income rather than replace traditional retirement planning strategies.

When Do QLAC Payments Start?

QLAC income payments must begin no later than age 85, but you can choose to start them earlier if desired.

The later payments begin, the higher the monthly income will typically be, because the insurance company has more time to invest your funds and because payments are expected to last for fewer years.

Once payments start, they are taxed as ordinary income.

Who Should and Shouldn’t Consider a QLAC?

A QLAC may be a good fit for retirees who:

• Are concerned about outliving their retirement savings
• Want to reduce taxable RMDs in their 70s and early 80s
• Have sufficient savings to lock up a portion for later-life income
• Prefer predictable, guaranteed income over market-based returns

QLACs are often used as part of a broader retirement income strategy rather than as a standalone solution.

You may want to avoid a QLAC if you:

• Need access to all retirement funds for liquidity or emergencies
• Expect to rely heavily on early retirement income
• Are uncomfortable giving up control of principal
• Prefer investment-based income strategies with growth potential

Because QLAC funds are illiquid, it’s important to ensure other assets can cover short- and mid-term needs.

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Optional Features and Death Benefits

QLACs can include optional features that affect how income is paid and what, if anything, is left to beneficiaries. These options allow you to customize the balance between maximizing lifetime income and providing financial protection for heirs.

Return-of-premium death benefits
This option ensures that if you pass away before receiving payments equal to your original investment, the unused portion of your premium is refunded to your beneficiaries. While this provides peace of mind and preserves legacy value, it typically results in lower monthly income compared to options without a death benefit.

Life-only payments
Life-only income options are designed to produce the highest possible monthly payment. Payments continue for as long as you live, but stop at death, leaving no remaining benefit for beneficiaries. This option is often chosen by individuals who prioritize maximizing income and are less concerned with leaving funds behind.

Joint-life options
Joint-life features provide income for two people, usually spouses. Payments continue as long as at least one person is alive, offering protection for a surviving spouse. Because payments are expected to last longer, joint-life options generally produce lower monthly income than single-life payments.

It’s important to understand that adding guarantees or beneficiary protections almost always reduces monthly income. Choosing the right combination depends on your longevity expectations, household income needs, and whether leaving money to beneficiaries is a priority.

Advantages & Disadvantages of a QLAC

A QLAC offers unique benefits for retirement income and required minimum distribution (RMD) planning, but it also has important limitations to consider. Reviewing both the pros and cons can help you decide whether a QLAC fits your retirement goals and risk tolerance.

Example: How a QLAC Might Work

Harold, age 65, invests $150,000 from his traditional IRA into a QLAC and chooses to begin income at age 85. The invested amount is excluded from RMD calculations during the deferral period. At age 85, the annuity provides guaranteed lifetime income, which is taxed as ordinary income when paid.

This approach can help preserve Harold’s assets earlier in retirement while providing guaranteed income later in life, when it may be most needed.

How QLACs Fit into a Retirement Plan

A QLAC is best viewed as insurance against living a very long life, not as a growth or income tool for early retirement.

Many retirees use QLACs alongside:

• Social Security
• Pensions
• Immediate or deferred annuities
• Investment portfolios

Used correctly, a QLAC can help create a more balanced and resilient retirement income strategy.

Qualified longevity annuity contracts can provide a cost-effective solution for retirees who are willing to use part of their savings to protect against outliving the rest of their assets. There have been times when one of my conservative investors, who wants no market risk and wants to avoid taxes, has opted for a QLAC.

Aamir M. Chalisa, MBA, LUTCF, MDRTGeneral Manager at Futurity First Insurance Group

Aamir M. Chalisa is a seasoned financial services leader with over 30 years of experience in insurance, wealth management and retirement planning. As General Manager of Futurity First Insurance Group’s Oak Brook branch, he oversees one of the company’s top-performing teams. Aamir has held leadership roles at MetLife, Prudential and Nationwide and is a Million Dollar Round Table (MDRT) qualifier, recognized for his expertise in life and annuity sales and commitment to helping clients achieve lasting financial security.