⚡ Quick Answer
A Qualified Longevity Annuity Contract (QLAC) lets you defer a portion of your IRA or 401(k) distributions to as late as age 85, reducing your Required Minimum Distributions (RMDs) in the years when you may need income less. Under SECURE 2.0 (effective 2024–2026), you can allocate up to $200,000 (indexed for inflation) or 25% of your retirement account balance—whichever is less—into a QLAC. This strategy can cut your RMD-based taxable income by $5,000–$15,000 per year during your 70s, while guaranteeing lifetime income starting at an age when other assets may be running low.
Key Takeaways
- SECURE 2.0 raised the QLAC limit to $200,000 (2024–2026), up from $135,000 under the original 2014 rules—giving retirees significantly more room to defer taxable income
- RMDs are excluded on the QLAC value from age 73 (the new RMD age under SECURE 2.0) until payouts begin at your elected start age (up to 85)
- Tax savings are front-loaded: the reduction in taxable income is largest in your early-to-mid 70s when RMDs would otherwise be highest relative to your spending needs
- QLACs only exist inside qualified plans (IRA, 401k, 403b)—you cannot buy one with taxable funds; non-qualified deferred annuities are the alternative for after-tax money
- The trade-off is liquidity: once you fund a QLAC, that money is locked until the payout start date—there are no early withdrawals, no loans, and no surrender for cash
- Married couples can double the benefit: each spouse can hold a separate QLAC, potentially shielding $400,000 combined from RMDs
What Is a QLAC and Why Does It Matter in 2026?
A Qualified Longevity Annuity Contract is a special type of deferred annuity designed specifically for use inside tax-advantaged retirement accounts. Congress created the QLAC designation in 2014 (via Treasury Regulation §1.401(a)(9)-6) to address a specific problem: retirees were being forced to take RMDs on money they didn’t actually need to spend, pushing them into higher tax brackets and increasing Medicare premiums.
The Problem QLACs Solve
Without a QLAC, every dollar in your traditional IRA or 401(k) is subject to RMDs starting at age 73 (as of SECURE 2.0). If you have $1.5 million in retirement accounts:
- Age 73 RMD: ~$56,604 (based on Uniform Lifetime Table factor of 26.5)
- Federal tax on RMD (assuming 22% bracket): ~$12,453
- Income-Related Monthly Adjustment Amount (IRMAA): Could push Medicare Part B premiums to $258.30/month or higher
For retirees who have other income sources (pensions, rental income, Social Security), these forced distributions create unnecessary tax drag.
How a QLAC Changes the Calculation
By placing $200,000 into a QLAC with a start age of 85:
- Your RMD base drops by $200,000 immediately
- Age 73 RMD: ~$49,057 (based on $1.3M account instead of $1.5M)
- Annual tax savings in your 70s: $1,661–$3,000+ depending on bracket
- Cumulative tax savings by age 85: $15,000–$35,000+ in avoided taxes and IRMAA surcharges
- At age 85: QLAC begins paying guaranteed lifetime income
SECURE 2.0 QLAC Rules: What Changed for 2024–2026
The SECURE 2.0 Act of 2022 made several significant changes to QLAC rules that are fully in effect for 2026:
1. Increased Dollar Limit
| Year | QLAC Dollar Limit | Percentage Limit |
|---|---|---|
| 2023 (pre-SECURE 2.0) | $135,000 | 25% of account |
| 2024 | $200,000 | 25% of account |
| 2025 | $200,000 | 25% of account |
| 2026 | $200,000 (inflation-adjusted) | 25% of account |
The effective limit is the lesser of the dollar amount or 25% of your total qualified account balances. If your IRA has $500,000, your QLAC limit is $125,000 (25% cap). If your IRA has $1 million, your limit is $200,000 (dollar cap).
2. RMD Age Moved to 73 (and Eventually 75)
SECURE 2.0 pushed the RMD start age from 72 to 73 in 2024, and it will move to 75 in 2033. This actually makes QLACs more valuable because:
- The gap between RMD start (73) and QLAC payout start (up to 85) is now 12 years of tax deferral
- Each year of deferral means another year without paying income tax on that portion of your retirement savings
3. Annual Waiver for Continued Contributions
Under pre-SECURE 2.0 rules, you had to fund the QLAC before RMDs began. SECURE 2.0 now allows you to continue contributing to a QLAC even after RMDs have started, making it possible to adjust your strategy mid-retirement.
QLAC Tax Savings Calculator: Three Scenarios
Scenario 1: Modest Retiree ($600K IRA, Single)
| Factor | Without QLAC | With $150K QLAC |
|---|---|---|
| Account subject to RMDs | $600,000 | $450,000 |
| Age 73 RMD | $22,642 | $16,981 |
| Taxable income saved (22% bracket) | — | $1,246/year |
| Cumulative savings by age 85 | — | ~$14,952 |
| QLAC annual payout at 85 | — | ~$14,400/year for life |
Scenario 2: Affluent Retiree ($1.5M IRA, Married)
| Factor | Without QLAC | With $200K QLAC |
|---|---|---|
| Account subject to RMDs | $1,500,000 | $1,300,000 |
| Age 73 RMD | $56,604 | $49,057 |
| Taxable income saved (24% bracket) | — | $1,810/year |
| IRMAA avoidance | — | ~$1,000/year |
| Cumulative savings by age 85 | — | ~$32,520 |
| QLAC annual payout at 85 | — | ~$19,200/year for life |
Scenario 3: High Net Worth ($3M Total, Couple with Dual QLACs)
| Factor | Without QLAC | With $400K Combined QLACs |
|---|---|---|
| Accounts subject to RMDs | $3,000,000 | $2,600,000 |
| Combined age 73 RMD | $113,208 | $98,113 |
| Taxable income saved (32% bracket) | — | $4,834/year |
| IRMAA avoidance | — | ~$2,000/year |
| Cumulative savings by age 85 | — | ~$82,008 |
| Combined QLAC payout at 85 | — | ~$38,400/year for life |
QLAC vs. Other Retirement Income Strategies
QLAC vs. Regular Deferred Annuity in an IRA
| Feature | QLAC in IRA | Regular Deferred Annuity in IRA |
|---|---|---|
| RMD exemption | Yes (until payout starts) | No—full account value counts |
| Dollar limit | $200,000 | None |
| Start age flexibility | Up to age 85 | Typically 59½+ |
| Death benefit | Optional (reduces payout) | Standard features available |
| Liquidity | Zero until payout | Varies by contract |
QLAC vs. Roth Conversion Strategy
| Feature | QLAC | Roth Conversion |
|---|---|---|
| Upfront tax cost | None (stays in IRA) | Full tax on converted amount |
| RMD elimination | Partial (on QLAC amount) | Complete (Roth has no RMDs) |
| Estate planning | Limited | Excellent (tax-free inheritance) |
| Liquidity | Locked until start age | Full access after conversion |
| Complexity | Low (buy and wait) | High (multi-year planning) |
Many financial advisors recommend combining both strategies: convert some funds to Roth while using a QLAC to shield the remaining traditional IRA from excessive RMDs.
How to Buy a QLAC: Step-by-Step
Step 1: Check Eligibility
- You must have a qualified plan: Traditional IRA, 401(k), 403(b), or governmental 457(b)
- Roth IRAs are not eligible (they already have tax-free growth)
- Verify your plan administrator permits QLAC purchases (most major custodians do)
Step 2: Determine Your Allocation
Calculate the lesser of:
- $200,000 (2026 limit, adjusted for inflation)
- 25% of total qualified account balances (all traditional IRAs combined)
If you have $600,000 across all traditional IRAs: your QLAC limit is $150,000 (25% rule applies).
Step 3: Choose Your Payout Options
- Start age: Any age between the required beginning date and 85 (most people choose 80–85)
- Payout type: Life only (highest payout), life with period certain, or joint and survivor for couples
- Inflation adjustment: Available but reduces the initial payout significantly (typically 15–25% reduction)
- Return of premium: Available as a death benefit but reduces monthly payout
Step 4: Complete the Purchase
- Contact your IRA custodian or a licensed insurance agent
- The QLAC must be issued by a licensed insurance company
- Ensure the contract explicitly meets QLAC requirements (no cash value, no surrender right, fixed payouts)
Step 5: Report on Your Taxes
- File Form 8606 with your tax return for the year of purchase
- Report the QLAC value as a reduction to your IRA balance for RMD calculations
- No taxable event occurs at purchase—the money stays inside the IRA
Common QLAC Mistakes to Avoid
1. Overfunding Beyond the Limit
If you exceed $200,000 or 25% of your account, the excess is treated as a regular distribution—triggering immediate income tax and potentially the 10% early withdrawal penalty.
2. Ignoring the Liquidity Lock
QLAC funds are completely inaccessible until payouts begin. If you face a health emergency or large expense in your 70s, you cannot tap the QLAC. Keep adequate liquid reserves outside the QLAC.
3. Choosing Too Early a Start Age
Selecting age 75 as the start age defeats the purpose—you only get 2 years of RMD relief. The sweet spot is typically 82–85 for maximum tax deferral.
4. Forgetting About Inflation
A fixed QLAC payout of $19,200/year sounds adequate at age 85, but in 15–20 years of retirement, inflation will have eroded roughly 40% of purchasing power. Consider an inflation-adjusted rider if you’re purchasing in your early 60s.
5. Not Coordinating with a Spouse
Married couples can hold separate QLACs, but the 25% limit applies to each individual’s accounts, not the combined household. Proper coordination can double the RMD relief.
Who Should (and Shouldn’t) Consider a QLAC
Good Candidates
- Retirees aged 55–70 with $500K+ in traditional IRAs who don’t need all their RMD income
- Couples with combined accounts over $1 million who want to reduce IRMAA surcharges
- Anyone concerned about outliving assets who wants guaranteed income in their late 80s and 90s
- High-bracket retirees (28%+ marginal rate) where RMD tax drag is significant
Poor Candidates
- Those who need maximum liquidity in retirement (QLAC money is locked)
- Retirees with primarily Roth assets (no RMD problem to solve)
- People in poor health who may not live to the QLAC start age
- Those with pensions covering most expenses (limited benefit from RMD reduction)
Related Resources
- Annuity Payout Options Explained — Compare life, period certain, and joint payout structures
- Annuity Tax Withholding Strategies — Optimize tax withholding on annuity distributions
- Taxable vs Qualified Account Annuity Strategy — Decide where to hold your annuity
- Annuity Surrender Charge Tax Deduction Guide 2026 — Tax implications of exiting annuity contracts
- Sequence Risk Hedge Using Annuity Income Floors — Using annuities to protect against market timing risk
FAQ
How is a QLAC different from a regular deferred annuity inside an IRA?
A QLAC is exempt from RMD rules until payouts begin, while a regular deferred annuity inside an IRA is still subject to RMDs based on its full account value. QLACs also have no cash surrender value and no early withdrawal option—they are pure longevity insurance.
Can I buy a QLAC with Roth IRA funds?
No. QLACs can only be purchased with pre-tax qualified funds (traditional IRA, 401k, 403b, 457b). Roth IRAs are already tax-free and have no RMD requirement for the original owner, so there’s no benefit to using a QLAC structure.
What happens to my QLAC if I die before payouts begin?
QLAC contracts can include an optional return-of-premium death benefit. If you select this feature and die before your elected start age, your beneficiary receives the original premium amount. This feature will reduce your eventual payout by roughly 5–10%.
Is the $200,000 QLAC limit per person or per household?
The limit is per individual. A married couple where each spouse has their own traditional IRA can each fund a QLAC up to $200,000, for a combined $400,000 in RMD-shielded assets.
Can I change the QLAC start age after purchasing?
Generally no—the start age is fixed at the time of purchase and cannot be changed. This is why it’s critical to choose carefully, typically selecting an age between 80 and 85 that aligns with your overall retirement income timeline.
How much does a QLAC payout at age 85?
Payouts vary by carrier, but as a rough guideline: a $200,000 QLAC purchased at age 65 with a start age of 85 typically generates $16,000–$22,000 per year for a single life. Choosing a joint-and-survivor option or adding a death benefit will reduce this payout.
Does a QLAC affect my Medicare premiums?
Yes—in a positive way. By reducing your RMDs, a QLAC can keep your modified adjusted gross income (MAGI) below the IRMAA thresholds. This can save you $800–$3,000+ per year on Medicare Part B and D premiums throughout your 70s and early 80s.
Are QLAC payouts taxable?
Yes. Since QLAC funds come from pre-tax retirement accounts, all payouts are taxed as ordinary income. This is the trade-off for the years of tax-deferred growth between purchase and the start of payouts.