QLACs Explained: How a Longevity Annuity Can Delay RMDs and Hedge Against Outliving Savings

Required Minimum Distributions force most retirement savers to start pulling money out of traditional IRAs and 401(k)s in their 70s, whether they need the cash or not. A Qualified Longevity Annuity Contract, or QLAC, offers a narrow but legal way to carve out a slice of that account and delay taxable withdrawals on it for years, in exchange for locking the money into a future stream of guaranteed income. Congress expanded the rules for QLACs under the SECURE 2.0 Act of 2022, and the Treasury Department and IRS finalized updated regulations in mid-2024, making the product more flexible than it was when it was first introduced a decade earlier.

What a QLAC Actually Is

A QLAC is a type of deferred income annuity purchased with money from an eligible retirement account. Instead of paying out immediately, it promises to start making payments at a future date the owner chooses, no later than age 85. The IRS allows the value of a properly structured QLAC to be excluded from the year-end account balance used to calculate RMDs for as long as the annuity is in its deferral period. That exclusion is the entire point: it can shrink the RMDs owed on the rest of the account in the interim, and it guarantees income later in life when other savings might be running low.

The Rules After SECURE 2.0

• Dollar limit, not percentage limit: SECURE 2.0 replaced the old rule capping QLAC premiums at 25% of an account balance with a flat dollar limit, set at $200,000 for contracts purchased starting in 2023, and indexed for inflation in later years by the IRS.
• Eligible accounts: Traditional IRAs, 401(k), 403(b), and governmental 457(b) plans can fund a QLAC. Roth IRAs are excluded because Roth IRA owners do not have lifetime RMDs to defer in the first place.
• Latest starting age: Payments must begin no later than the first day of the month following the owner's 85th birthday.
• Death benefits allowed: The 2024 final regulations confirmed that QLACs can include a return-of-premium feature, so if the owner dies before recovering the full premium through payments, a beneficiary can receive the remaining value rather than the insurer keeping it.
• Joint and survivor options: A QLAC can be structured to continue paying a spouse or other named beneficiary after the original owner's death, similar to survivor options on traditional pensions.

How the RMD Exclusion Mechanically Works

RMDs are calculated by dividing a retirement account's prior year-end balance by an IRS life-expectancy factor from the Uniform Lifetime Table or Joint Life Table, both published in IRS Publication 590-B. Once a portion of an IRA or 401(k) is used to purchase a qualifying QLAC, that premium amount is removed from the balance used in this calculation for every year the annuity remains in deferral. The owner still owes RMDs on whatever is left in the account, calculated the normal way. Once QLAC payments start, those payments themselves count toward satisfying RMDs for that portion of the money.

Who Might Consider One, and Who Probably Shouldn't

• Good fit: Retirees worried mainly about longevity risk, meaning the possibility of living well into their 90s and depleting other savings, who want a guaranteed paycheck that kicks in later and are comfortable giving up liquidity on that portion of savings.
• Good fit: People who want to lower reported taxable income from RMDs in their 70s and early 80s, for reasons such as managing Medicare IRMAA surcharges or tax bracket planning, since the deferred QLAC premium isn't counted.
• Weaker fit: Savers who may need access to the full account for emergencies, since QLAC premiums are generally illiquid once purchased.
• Weaker fit: Those without inflation-adjusted payout options, since a fixed QLAC payment starting at 85 can lose real purchasing power over a long deferral period unless the contract includes a cost-of-living adjustment feature, which typically reduces the starting payment.