Qualified Longevity Annuity Contracts (QLAC)

What is a QLAC

A Qualified Longevity Annuity Contract is a deferred income annuity that satisfies specific IRS rules to qualify for QLAC treatment. The rules were created under Treasury Regulation 1.401(a)(9)-6 in 2014 and significantly expanded by the SECURE Act 2.0 in 2022.

For an annuity to be treated as a QLAC, it must:

• Be funded with money from a qualified retirement account (traditional IRA, 401(k), 403(b), 457(b)).
• Begin income payments no later than the first day of the month following the annuitant's 85th birthday.
• Be structured as a deferred income annuity (no cash surrender value beyond what is permitted under QLAC rules).
• Stay within the IRS premium limit, which is indexed for inflation.
• Be clearly designated as a QLAC at issue.

How a QLAC works

The consumer transfers money from a qualified account to a carrier as a single premium for the QLAC. The carrier issues the contract. The contract is now part of the consumer's retirement plan but is treated separately from the rest of the IRA for RMD purposes.

The QLAC defers income to a chosen future date (no later than age 85). Between the premium date and the income start date, the QLAC has no cash surrender value, no withdrawals, and no required RMDs of its own. Income begins on the elected start date.

Premium limit

The IRS sets a dollar limit on the QLAC premium that an individual can contribute. Under SECURE 2.0, the limit is $200,000 per person and is indexed for inflation. The limit applies per individual, not per contract, so a consumer with multiple IRAs can split the QLAC premium across more than one carrier as long as the combined total stays within the limit.

Verify the current limit at the IRS site or current IRS Publication 590-B before purchase. The limit has been increased twice since the QLAC was created and may be adjusted again.

Eligible accounts

QLAC premiums can be funded from:

• Traditional IRA
• SEP-IRA and SIMPLE IRA
• 401(k) plans
• 403(b) plans
• Governmental 457(b) plans

QLAC premiums cannot be funded from Roth IRAs or non-qualified accounts. Roth IRAs do not have RMDs during the original owner's lifetime, so the QLAC structure provides no incremental benefit.

RMD reduction mechanic

The IRA balance used to calculate RMDs at age 73 excludes the QLAC premium. This reduces the annual RMD by an amount equal to the QLAC premium multiplied by the RMD divisor for the consumer's age.

The reduction continues for every year between RMD start age (currently 73, rising to 75 in 2033 under SECURE 2.0) and the QLAC income start date. Once QLAC income begins, the income payments are taxed as ordinary income but the income is not subject to RMD calculations.

Deferral age cap

QLAC income must begin no later than the first day of the month following the annuitant's 85th birthday. This cap is set by IRS regulation. Earlier start dates are allowed (a QLAC can begin paying at age 75, 78, or any other date the consumer chooses), but no later than 85.

Most QLAC purchases use a deferral period of 10 to 20 years from issue. A 65-year-old typically chooses an income start date between ages 75 and 85.

Survivor and refund options

QLACs can include survivor benefits, return-of-premium death benefits during deferral, and cash refund features. The IRS rules permit a return-of-premium death benefit during deferral without disqualifying QLAC status. After income begins, joint and survivor structures and cash refund features are allowed.

Each beneficiary protection feature reduces the monthly income compared to a life-only QLAC, just as with a non-QLAC DIA.

Tax treatment

QLAC income is taxed as ordinary income when paid. The full premium is treated as pre-tax (since it came from a qualified account). There is no exclusion ratio because no after-tax basis exists.

If the QLAC is funded from a SEP-IRA, SIMPLE IRA, or 401(k), the rollover from the source account to the QLAC must follow standard rollover or direct transfer rules to avoid being treated as a distribution.

Retirement income integration

QLACs work as one component of a multi-layered retirement income plan. A typical structure:

• Social Security claimed at or near full retirement age, providing a guaranteed income floor.
• Pension (if available), providing a second income floor.
• Portfolio withdrawals covering ages 65 through QLAC income start.
• QLAC income activating at age 80 or 85, providing late-life longevity protection.

The QLAC's role is to insulate the rest of the portfolio from sequence-of-returns risk during the highest-spending or highest-care years of late retirement.

When a QLAC fits

• The consumer has IRA or 401(k) assets that would otherwise be subject to RMDs starting at 73 (or 75 after 2033).
• The consumer wants insurance against living past 85 or 90.
• The consumer wants to reduce taxable RMD income in the years before QLAC income begins.
• The consumer can cover ages 65 to 80 (or 85) without the QLAC premium.

When a QLAC does not fit

• The consumer's qualified balance is too small for the RMD reduction to be material.
• The consumer needs full liquidity from the IRA.
• The consumer has below-average life expectancy.
• The consumer is using a Roth IRA (no RMD benefit applies).
• The consumer prioritizes leaving the IRA balance to heirs (QLAC premium without death benefit returns nothing if the annuitant dies during deferral).

Frequently asked questions

How is a QLAC different from a regular DIA?

A QLAC is a DIA that meets specific IRS requirements. The product mechanics are the same. The legal classification differs. A non-QLAC DIA funded with qualified money does not get the RMD exclusion and is subject to regular RMD rules.

Can I cancel a QLAC after purchase?

Most carriers offer a free look period (10 to 30 days) during which the contract can be cancelled. After the free look, QLACs are generally irrevocable. The IRS rules require the contract to be a deferred income annuity with no cash surrender value to qualify as a QLAC.

What happens to a QLAC at the annuitant's death before income begins?

If the contract has a return-of-premium death benefit during deferral, the premium is returned to beneficiaries. Without that feature, the premium is generally forfeited to the carrier. QLAC contracts with refund features are widely available and worth strong consideration for consumers concerned about pre-deferral death.

Can spouses each have a QLAC?

Yes. Each spouse may purchase a QLAC up to the individual premium limit ($200,000 under SECURE 2.0). For a married couple, the combined QLAC capacity is $400,000.

What is the difference between the $200,000 QLAC limit and prior limits?

Before SECURE 2.0 (2022), the limit was 25% of the IRA balance or $145,000, whichever was less. SECURE 2.0 simplified the rule to a flat $200,000 dollar amount, indexed for inflation, and removed the percentage cap.

Sources

• Internal Revenue Service
• SECURE Act (2019)
• IRS Publications
• National Association of Insurance Commissioners
• Individual carrier QLAC product brochures

Related

• Deferred Income Annuities, the parent product category
• Single Premium Immediate Annuities, the no-deferral alternative
• Retirement Income Planning Guide
• Glossary: RMD (Required Minimum Distribution)
• Glossary: Qualified Annuity