Qualified Longevity Annuity Contract (QLAC)

A QLAC is a retirement strategy where a portion of required minimum distributions (RMDs) are deferred. QLACs provide protection, guarantee a monthly income for life; and defer taxes from RMDs. For these reasons, the best age to buy a QLAC is around 65 or older. The SECURE 2.0 Act allows moving up to $200,000 from a retirement plan to a QLAC.

headshot of Thomas J. Brock, CFA, CPA
  • Written By
    Thomas J. Brock, CFA®, CPA

    Thomas J. Brock, CFA®, CPA

    Investment, Corporate Finance and Accounting Expert

    Thomas Brock, CFA®, CPA, is a financial professional with over 20 years of experience in investments, corporate finance and accounting. He currently oversees the investment operation for a $4 billion super-regional insurance carrier.

    Read More
  • Edited By
    Lamia Chowdhury
    Lamia Chowdhury

    Lamia Chowdhury

    Financial Editor

    Lamia Chowdhury is a financial editor at Annuity.org. Lamia carries an extensive skillset in the content marketing field, and her work as a copywriter spans industries as diverse as finance, health care, travel and restaurants.

    Read More
  • Financially Reviewed By
    Marguerita M. Cheng, CFP®, CRPC®, CSRIC®, RICP®
    headshot of Marguerita M. Cheng, CFP

    Marguerita M. Cheng, CFP®, CRPC®, CSRIC®, RICP®

    CEO of Blue Ocean Global Wealth

    Marguerita M. Cheng, CFP®, CRPC®, CSRIC®, RICP®, is the chief executive officer at Blue Ocean Global Wealth. As a CFP Board of Standards Ambassador, Marguerita educates the public, policymakers and media about the benefits of competent and ethical financial planning. She is a past spokesperson for the AARP Financial Freedom campaign.

    Read More
  • Updated: June 30, 2023
  • 9 min read time
  • This page features 20 Cited Research Articles
Fact Checked
Fact Checked

Annuity.org partners with outside experts to ensure we are providing accurate financial content.

These reviewers are industry leaders and professional writers who regularly contribute to reputable publications such as the Wall Street Journal and The New York Times.

Our expert reviewers review our articles and recommend changes to ensure we are upholding our high standards for accuracy and professionalism.

Our expert reviewers hold advanced degrees and certifications and have years of experience with personal finances, retirement planning and investments.

Cite Us
How to Cite Annuity.org's Article

APA Brock, T. J. (2023, June 30). Qualified Longevity Annuity Contract (QLAC). Annuity.org. Retrieved June 20, 2024, from https://dev.annuity.org/annuities/qlac/

MLA Brock, Thomas J. "Qualified Longevity Annuity Contract (QLAC)." Annuity.org, 30 Jun 2023, https://dev.annuity.org/annuities/qlac/.

Chicago Brock, Thomas J. "Qualified Longevity Annuity Contract (QLAC)." Annuity.org. Last modified June 30, 2023. https://dev.annuity.org/annuities/qlac/.

Why Trust Annuity.org
Why You Can Trust Annuity.org
Annuity.org has provided reliable, accurate financial information to consumers since 2013. We adhere to ethical journalism practices, including presenting honest, unbiased information that follows Associated Press style guidelines and reporting facts from reliable, attributed sources. Our objective is to deliver the most comprehensive explanation of annuities and financial literacy topics using plain, straightforward language.

Our Partnerships, Vision and Goals

We pride ourselves on partnering with professionals like those from Senior Market Sales (SMS) — a market leader with over 30 years of experience in the insurance industry — who offer personalized retirement solutions for consumers across the country. Our relationships with partners including SMS and Insuractive, the company’s consumer-facing branch, allow us to facilitate the sale of annuities and other retirement-oriented financial products to consumers who are looking to purchase safe and reliable solutions to fill gaps in their retirement income. We are compensated when we produce legitimate inquiries, and that compensation helps make Annuity.org an even stronger resource for our audience. We may also, at times, sell lead data to partners in our network in order to best connect consumers to the information they request. Readers are in no way obligated to use our partners’ services to access the free resources on Annuity.org.

Annuity.org carefully selects partners who share a common goal of educating consumers and helping them select the most appropriate product for their unique financial and lifestyle goals. Our network of advisors will never recommend products that are not right for the consumer, nor will Annuity.org. Additionally, Annuity.org operates independently of its partners and has complete editorial control over the information we publish.

Our vision is to provide users with the highest quality information possible about their financial options and empower them to make informed decisions based on their unique needs.

Key Takeaways

  • A qualified longevity annuity contract allows you to reduce your taxes and put off required minimum distributions (RMDs) from retirement accounts until an age specified in your contract.
  • A QLAC allows you to fund the annuity with an investment from your qualified retirement account.
  • A QLAC can protect your savings from market fluctuations, enhance your retirement’s financial security and provide potential benefits to your spouse and other beneficiaries.

What Is a QLAC?

In 2014, the U.S. Treasury Department issued rules permitting any individual with a qualified retirement plan, such as a 401(k), a 403(b) or an IRA, to use his or her retirement savings to purchase a qualified longevity annuity contract (QLAC), which is a type of deferred fixed annuity. Buying one can be a smart way to optimize your retirement plan — particularly if you’re a conservative investor.

QLACs are designed for people with minimal appetite for stock market volatility and the desire for hands-off, guaranteed income. They offer additional value to individuals that wish to sidestep the IRS required minimum distribution (RMD) rules that govern qualified retirement plans.

Did You Know?

A QLAC must be funded with money from a traditional retirement plan, but not one that has been inherited. Furthermore, a QLAC cannot be funded with money from a Roth-style plan, such as a Roth 401(k) or a Roth IRA.

QLAC Lifetime Purchase Limit

Qualified retirement plan owners can purchase up to $200,000 in QLACs. An earlier provision that limited it to a percentage of their total retirement account savings was done away with in the SECURE Act 2.0. For IRAs, the limit pertains to the sum of all account balances. Aggregate QLAC purchases, regardless of source, cannot exceed $200,000.

Who Should Buy a QLAC?

QLACs are best suited for people nearing retirement with concerns about outliving their nest eggs or have a desire to diversify their assets. While relatively low-yielding, QLACs address both concerns – providing a guaranteed, lifetime stream of income that exhibits zero volatility.

The predictable nature of QLACs is highly attractive, but it’s a secondary benefit for some investors. Individuals utilize QLACs to optimize their tax positions, taking advantage of IRS allowances to defer the required minimum distributions (RMDs) associated with traditional retirement plans.

The type of person that could benefit from incorporating a QLAC into a retirement plan generally exhibits the following characteristics:

  • Good health with a family history of longevity (life expectancy well into late 80s or 90s)
  • Owner of a qualified retirement plan, such as 401(k), 403(b) or IRA, with enough money to cover near-term retirement spending needs and a desire to minimize taxes
  • Independent mindset, with a desire to avoid becoming a burden to his or her children during retirement

Consider Harold, a 71-year-old guy with a sizeable 401(k). He’s been wrestling with the idea of retiring, and his financial advisor has briefed him about RMDs, which are to begin next year.

Profile of Someone Who Considers a QLAC
Annuity rates on a phone

Purchase an Annuity Today

Learn how an investment today can provide guaranteed income for life.

While some aspects of retirement appeal to Harold, he gets a lot of satisfaction from his work, and he enjoys the structure of his day. After careful consideration, he opts to continue working until age 77 — either with his current employer or in a freelance capacity.

After discussing things with his advisor, Harold decides to transfer $100,000 of his 401(k) savings to a QLAC. Doing so will allow him to reduce next year’s RMD and avoid moving into a higher tax bracket. On top of that, it will reduce Harold’s concerns about outliving his savings.

In order to minimize his taxes, Harold plans to leave the QLAC money invested until age 85. He’s confident he’ll have enough income to live comfortably. At 85, the annuity income will bolster his cash flows.

A QLAC is typically not a smart choice for a person that has no worries about running out of money since they do not have a longevity risk to insure. Purchasing one may offer some tax advantages, but they are unlikely to make a material difference.

Qualified Longevity Annuity Contracts and Tax Advantages

According to the U.S. Treasury Department, 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. QLACs can also help you defer your tax obligations for longer than possible with qualified retirement plans.

How the Contract Works

A QLAC provides a guaranteed stream of monthly income that begins at a future date of your choosing. If desired, the payments can be deferred until you reach 85 years old.

Some annuity providers allow you to change the start date of your payments, but no changes can be made to the contract once payments begin.

The size of the payments depends on the amount of money you put into the contract, plus the amount of interest earned. Generally, the longer you wait to begin receiving payments, the higher the payments will be.

Reducing Required Minimum Distributions

If you keep money in a traditional retirement plan, you must take a required minimum distribution (RMD) each year, beginning at the age 73 — or 72 if you reach 72 before January 1, 2023. Failure to do so will result in a penalty of 25% or 50% of the RMD depending on your age.

Generally, RMDs cannot be aggregated across accounts. A distinct RMD must be taken for each unique account, but exceptions exist for 403(b) plans and IRAs.

Did You Know?

Unlike 401(k) plans, 403(b) plans and traditional IRAs, Roth IRAs do not have required minimum distributions imposed on them.

The various rules are somewhat complex. If you have a financial advisor, be sure to leverage his or her expertise to get your hands around everything.

RMD Exemption for QLACs

QLACs are exempt from RMD rules. With a QLAC, you can defer receiving income payments until age 85. By deferring payments, you may be able to avoid getting bumped into a higher tax bracket, and in turn, you could lower your Medicare premiums. This strategy can be especially effective if you end up working beyond age 73.

The IRS offers a RMD worksheet with formulas to help determine RMDs at specific ages. According to the worksheet, you take your retirement account balance as of Dec. 31 of the previous year and divide it by the distribution period associated with your age on your birthday in the current year.

The 2023 age-based distribution periods, which reflect the IRS’ Uniform Lifetime Table, are illustrated below. They pertain to all retirement accountholders, except those whose sole beneficiary is a spouse that is more than 10 years younger. For them, values from the IRS’ Joint Life Expectancy Table must be used. Additionally, when dealing with an inherited IRA, distinct rules apply.

Required Minimum Distribution Worksheet

Age Distribution Period
72 27.4
73 26.5
74 25.5
75 24.6
76 23.7
77 22.9
78 22.0
79 21.1
80 20.2
81 19.4
82 18.5
83 17.7
84 16.8
85 16.0
86 15.2
87 14.4
88 13.7
89 12.9
90 12.2
Source: Fidelity

Strategies and Considerations Before Purchasing a QLAC

When you purchase a QLAC, you’re exchanging the potential for wealth accumulation for a guaranteed stream of income in retirement. It’s a hands-off approach to investing that will not expose you to any volatility.

However, the opportunity cost of locking up your money in a QLAC can be considerable. Fortunately, there are several strategies that can help mitigate this risk.

Add a Death Benefit

A return-of-premium death benefit is a valuable feature, or rider, that can be added to a QLAC. Upon death of the annuitant — or annuitants, in the case of a joint-and-survivor annuity — it allows a contract owner to transfer any remaining assets in an annuity to a named beneficiary. Without the death benefit, all remaining assets are surrendered to the issuing insurance company.

Incorporate a Cost-of-living Adjustment (COLA)

A cost-of-living adjustment (COLA) is another valuable rider you can add to a QLAC at the time of purchase. A COLA indexes the annuity’s payments to inflation readings, such as those computed via the Consumer Price Index (CPI).

Unfortunately, a COLA add-on invariably means reduced payments, at least initially. You need to carefully evaluate whether the inflation protection justifies the lower initial payments, given your life expectancy.

Ladder Your QLACs

Annuity laddering is a financial strategy that involves buying a handful of relatively small QLACs over several years instead of putting all the money into a single QLAC. The strategy is an effective way to mitigate interest-rate risk.

Staggering QLAC purchases makes sense if you think interest rates will go up. Spreading the purchases over time prevents you from getting locked into a single fixed rate and missing out on higher income in later years.

It’s a wise way to increase your QLAC payout potential while maintaining some financial flexibility. However, in a falling rate environment, this strategy will result in diminished earnings.

Check Out the Issuer’s Financial Strength

QLACs are insurance products backed by insurance companies. However, a QLAC is not insured in a literal sense. It is backed by the financial strength of the issuing company.

In the event of a default, state guaranty associations offer some protection, but it may not be enough to make you whole. Therefore, you should strive to buy QLACs from insurance companies that are in superb financial condition.

The best annuity issuers have well-established track records with strong balance sheets and resilient operations. Their financial strength is signified by an A.M. Best Company Financial Strength Rating of at least “A-: Excellent.”

Rising chart icon

Ready to Secure Your Financial Future?

Get guaranteed income for retirement by purchasing an annuity today.

QLAC Pros and Cons

As with any financial instrument, the benefits and risks of a QLAC should be carefully considered prior to purchase. Some of the more prominent considerations are outlined below.

QLAC Benefits

Guaranteed Income
A QLAC provides guaranteed income for life. This can be invaluable for a risk-conscious retiree that expects to live a long life.
Extended Tax Deferral
A QLAC gives you the option of delaying income distributions until age 85 (versus age 73 for traditional retirement plans). The extended deferral can help you minimize your taxable earnings, which lowers your tax obligation and offers the added potential of reducing your Medicare premiums.
Flexible Structures/Features
A QLAC can be customized to meet the needs of the contract owner. This includes determining the age at which you want to initiate your payments. Oftentimes, the customization entails establishing a joint life structure that provides a payment throughout the lives of you and your spouse. In some cases, it entails adding a death benefit rider or a COLA rider.

While QLACs can be a sound investment choice for an individual that is concerned about longevity risk, it makes little sense for an individual that is unlikely to outlive his or her savings.

QLAC Disadvantages

QLACs are complicated, and their terms and provisions can be confusing to the average person. This is problematic, especially when unscrupulous salespeople push these products without considering the unique personal and financial circumstances of their customers.
Low Yielding
QLACs offer investors guaranteed income, but their returns are much lower than many of the financial securities and fund-style vehicles you can hold within traditional retirement plans. Before buying a QLAC, make sure you clearly understand the trade off.
QLACs are less liquid than traditional retirement plans. Once you reach retirement age, you can withdraw your savings at any time. However, with a QLAC, your monthly income distributions are fixed per the terms of the agreement.
Please seek the advice of a qualified professional before making financial decisions.
Last Modified: June 30, 2023

20 Cited Research Articles

Annuity.org writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.

  1. A.M. Best Company, Inc. (n.d.). Guide to Best's Financial Strength Ratings (FSR). Retrieved from https://www.ambest.com/ratings/guide.pdf?_ga=2.153364607.610169240.1663710730-1618489713.1663710730
  2. Anderson, T. (2015, September 9). An option for those who fear outliving their money. Retrieved from https://www.cnbc.com/2015/09/08/qualified-longevity-annuities-can-provide-income-late-in-life.html
  3. Ashford, K. and Curry, B. (2021, October 7). What Is a Qualified Longevity Annuity Contract (QLAC)? Retrieved from https://www.forbes.com/advisor/retirement/qlac-qualified-longevity-annuity-contract/
  4. Brien, M.J. and Constantijn, W.A. (2016, October 25). Innovations and Trends in Annuities: Qualifying Longevity Annuity Contracts (QLACs). Retrieved from https://www.dol.gov/sites/default/files/ebsa/researchers/analysis/retirement/innovations-and-trends-in-annuities.pdf
  5. Byrnes, W.H. and Bloink, R. (2015, July 20). Pros and Cons of the Longevity Annuity Contract. Retrieved from https://www.thinkadvisor.com/2015/07/20/pros-and-cons-of-the-longevity-annuity-contract/
  6. Carey, M. (2018, August 13). QLAC Pricing Improves AS More Insurers Offer Product & Bond Yields Rise. Retrieved from https://www.forbes.com/sites/mattcarey/2018/08/13/qlac-pricing-improves-as-more-insurers-offer-product-bond-yields-rise/#32c3959936e0
  7. Ed Slott and Company. (2022, March). 2022 Retirement Plan Contribution Limits. Retrieved from https://irp.cdn-website.com/7205c059/files/uploaded/March_2022-GREEN-Plan%20Limits%20Chart.pdf
  8. Haithcock, S. (2014, November 18). 13 reasons why a QLAC belongs in your IRA. Retrieved from https://www.marketwatch.com/story/13-reasons-why-a-qlac-belongs-in-your-ira-2014-11-18
  9. Harty, C. (2019, March 25). If You Hate RMDs, You Might Love QLACs. Retrieved from https://www.nasdaq.com/articles/if-you-hate-rmds-you-might-love-qlacs-2019-03-25
  10. Internal Revenue Service. (2022, August 26). About Form 1098-Q, Qualifying Longevity Annuity Contract Information (Info Copy Only). Retrieved from https://www.irs.gov/forms-pubs/about-form-1098-q
  11. Kitces, M. (2015, September 23). Why A QLAC In An IRA Is A Terrible Way To Defer The Required Minimum Distribution (RMD) Obligation. Retrieved from https://www.kitces.com/blog/why-a-qlac-in-an-ira-is-a-terrible-way-to-defer-the-required-minimum-distribution-rmd-obligation/
  12. Laise, E. (2018, November 30). Keys to Lock In Lifetime Retirement Income. Retrieved from https://www.kiplinger.com/article/retirement/t037-c000-s004-keys-to-lock-in-lifetime-retirement-income.html
  13. Roth, A. (2015, February 18). Are Longevity Annuities in Your Future? Retrieved from https://blog.aarp.org/money-talk/are-longevity-annuities-in-your-future
  14. Shukla, N. (2016, July 1). Deciding If a Qualified Longevity Annuity Contract is Right for You. Retrieved from https://www.nerdwallet.com/blog/investing/deciding-qualified-longevity-annuity-contract-right/
  15. U.S. Bureau of Labor Statistics. (2022, October 13). Consumer Price Index. Retrieved from
  16. https://www.bls.gov/cpi/
  17. U.S. Treasury Department. (2014, July 1) Treasury Issues Final Rules Regarding Longevity Annuities. Retrieved from https://www.treasury.gov/press-center/press-releases/Pages/jl2448.aspx
  18. Vernon, S. (2014, July 21). This annuity has you covered if you live long. Retrieved from https://www.cbsnews.com/news/longevity-annuity-provides-lifetime-income-from-401k/
  19. Wang, P. (2015, August 24). The New Way to Get IRA Income. Retrieved from https://money.com/ira-deferred-income-annuity/
  20. Zeidler, C. (2017, November 15). QLACs: A Secret Weapon to Help Reduce RMDs. Retrieved from https://www.kiplinger.com/article/retirement/t003-c032-s014-qlacs-can-help-reduce-rmds-from-iras-and-401ks.html