QLAC Explained: How a Qualified Longevity Annuity Contract Works

A qualified longevity annuity contract, or QLAC, is a deferred income annuity bought inside a traditional IRA or workplace retirement plan that is allowed to start its payments late, as far out as age 85, and whose purchase price is removed from the balance used to calculate required minimum distributions until the income begins. In plain terms, it is a way to convert part of your tax-deferred savings into guaranteed lifetime income that switches on in your eighties, while also shrinking the account balance that drives mandatory withdrawals in your seventies. The QLAC exists because the IRS wrote specific rules to permit it; without those rules, an annuity that paid nothing until 85 would clash with the required-distribution regime.

This guide explains the mechanism: what makes a QLAC different from an ordinary deferred annuity, the dollar limit and age rules the IRS sets, how the required-distribution deferral actually works, the trade-offs, and who the structure tends to suit. If annuities are new to you, our plain-English guide to how annuities work covers the foundations this article builds on.

What a QLAC Is, and Why It Needs Special Rules

A QLAC is a type of deferred income annuity. You hand an insurer a single premium today, and in exchange the insurer promises to pay you a fixed income for life starting on a future date you choose. The "longevity" label comes from the long deferral: the income is designed to begin late, providing a backstop against the risk of outliving your other money.

The reason a QLAC needs its own rulebook is the required minimum distribution (RMD) system. Traditional IRAs and pre-tax workplace accounts cannot stay sheltered forever; the IRS requires you to start drawing them down at a set age and to take a minimum amount each year after that. An ordinary annuity that paid nothing until 85 would not, on its own, satisfy those annual minimums on the money used to buy it. The QLAC rules carve out an exception: money spent on a qualifying contract is set aside from the RMD calculation until the annuity's payments start. That single feature is the whole point of the structure.

The IRS Limits: Dollar Cap and Start Age

A QLAC only earns its tax treatment if it stays inside the boundaries the IRS sets. Two limits matter most.

A dollar cap on the premium. The amount you can move into QLACs is limited. The SECURE 2.0 Act changed how this works: it removed the older rule that capped the premium at the lesser of 25% of your account balance or a set dollar figure, and replaced it with a single flat dollar limit that the IRS indexes for inflation over time. This is a lifetime limit on QLAC premiums, applied per person rather than per account, so a married couple can each fund their own contract up to the limit. The exact current figure changes with inflation adjustments, so confirm the limit in force for your year with the IRS before you commit; do not rely on a number you saw in an older article.

A latest start age. Income from a QLAC must begin no later than age 85. You can choose an earlier start, but 85 is the outer boundary the rules allow. The later you set the start date, the larger each eventual payment tends to be for a given premium, because the insurer expects to pay for fewer years and your money defers longer.

A few other conditions apply: the contract has to be designated as a QLAC, it is funded from eligible pre-tax retirement money rather than a Roth or an ordinary taxable account, and the insurer reports it to the IRS. Insurers issue a tax form for QLACs each year, so the contract's status is tracked. Treat the figures and conditions here as a framework to verify, not as live quotes; rates and the indexed limit change.

How the RMD Deferral Actually Works

The mechanics are worth slowing down on, because the RMD interaction is the main reason people consider a QLAC at all.

Normally, your RMD each year is calculated from the prior year-end balance of your tax-deferred accounts. The bigger that balance, the bigger the mandatory withdrawal, and that withdrawal is taxable income whether you need the cash or not.

When you buy a QLAC, the premium you paid is excluded from the balance used in that calculation, for as long as the QLAC has not yet started paying. So the money inside the QLAC does not generate an RMD during the deferral years. This has two effects:

• Smaller mandatory withdrawals in your seventies and early eighties. Less forced taxable income in those years, which can help keep you in a lower bracket and reduce knock-on costs.
• A delayed, then larger, income stream later. Once the QLAC's payments begin, they are taxable as ordinary income like any other distribution from a pre-tax account. You have not avoided tax; you have shifted when it lands.

That shift is the trade. A QLAC does not make the tax disappear. It moves a slice of your taxable income from your seventies into your eighties and converts it into a guaranteed lifetime payment. Whether that helps depends on your other income and your view of how long you will live. For the wider set of levers around mandatory withdrawals, see our guide to retirement tax strategies.

What You Give Up

The appeal of guaranteed late-life income is real, but the structure asks for things in return, and an honest account names them.

• Liquidity. The premium is largely locked into the contract. A QLAC is built to be illiquid by design; it is longevity insurance, not a savings account you dip into.
• The risk of dying early. If you choose a single-life payout with no return feature and die before or soon after payments begin, you may receive little or nothing back. Optional features can change this, such as a return-of-premium death benefit that pays your beneficiary the difference between what you paid and what you collected, or a joint-life option covering a spouse. Each feature costs something, usually in the form of lower income for the same premium.
• Inflation. A level QLAC payment that starts in your eighties will buy less than the same number of dollars buys today. Some contracts offer increasing payments to address this, again at the cost of a lower starting amount.
• Insurer dependence. The promise rests on the issuing insurer's claims-paying ability. State guaranty associations provide a backstop for certain insurance obligations up to state-specific limits, but coverage varies by state and is not federal deposit insurance. You can check an insurer's standing through your state insurance department.

None of these makes a QLAC bad. They make it a specific tool with a specific job, and the job is insuring against the financial risk of a long life, not maximizing the estate you leave or the flexibility you keep.

A QLAC Compared With Other Choices

It helps to set the QLAC next to the alternatives for the same money.

Option	When income starts	RMD effect	Liquidity
QLAC	Deferred, up to age 85	Premium excluded from RMD base until payments begin	Low; premium is committed
Immediate income annuity	Right away	Counts as a distribution; income is taxable	Low
Leaving money invested	Whenever you withdraw	Full balance stays in the RMD base	High

The QLAC's distinctive feature in that table is the middle column: it is the only one that both defers income and removes the premium from the RMD calculation in the meantime. If your concern is income timing rather than the RMD question, the broader choice between starting income now or later is covered in our guide to immediate vs deferred annuities. And if you are assembling several income sources rather than weighing one product, our overview of retirement income planning puts the QLAC in context.

Who a QLAC Tends to Suit

A QLAC is a niche instrument, not a default. It tends to fit a person who has a meaningful traditional IRA or pre-tax workplace balance, who is more worried about running out of money late in life than about leaving a large inheritance, who does not need the committed premium for liquidity, and who specifically values reducing required distributions in the near term. The deferral and the RMD relief are most useful to someone whose other income already covers their seventies comfortably, so the QLAC's job is purely to insure the far end of a long retirement.

It fits poorly for someone who needs access to the money, who has a shorter life expectancy or a strong bequest motive, or who has not first used cheaper and more flexible tools. As with any annuity, the contract language matters more than the sales summary: read how the start date, death benefit, and any inflation feature are defined before you commit, and verify the current IRS limit and any rates against primary sources.

This is education, not personal financial or tax advice. The dollar limit, the start-age rules, and tax treatment are set by the IRS and change; confirm the current figures with the IRS or a qualified professional before acting.

QLAC: Frequently Asked Questions

How much can I put into a QLAC?

The IRS sets a flat dollar limit on total QLAC premiums per person, which it indexes for inflation. The SECURE 2.0 Act removed the older percentage-of-balance cap in favor of this single dollar figure. Because the limit is adjusted over time, check the amount in force for your year directly with the IRS rather than relying on an older number.

When do QLAC payments have to start?

No later than age 85. You can choose an earlier start date, but 85 is the latest the rules permit. A later start generally produces a larger payment for the same premium, because the income defers longer and is expected to be paid for fewer years.

Does a QLAC reduce my required minimum distributions?

Yes, in a specific way. The premium you put into a QLAC is excluded from the account balance used to calculate your RMDs until the annuity begins paying. That lowers the mandatory withdrawals in the deferral years. Once payments start, they are taxable as ordinary income, so the tax is shifted in time rather than eliminated.

Can I buy a QLAC with Roth money?

No. QLACs are funded from eligible pre-tax retirement money, such as a traditional IRA or a workplace plan, not from a Roth account or ordinary after-tax savings. Roth accounts have different distribution rules, so they fall outside the QLAC framework. Confirm eligibility for your specific accounts with the IRS or a tax professional.