QLAC: deferred income that also trims your RMDs

A QLAC is a deferred income annuity bought inside a retirement account under special IRS rules. It pushes some of your income to later in life, when you may need it most, and lowers your required minimum distributions along the way.

A QLAC is like planting a tree whose shade you will not need for decades. You set it in the ground today, leave it alone while it grows, and it is standing there waiting for you exactly when the sun gets hottest.

Introduction

Retirement planning has a quiet blind spot: the years after 80. Most of us plan carefully for the day we stop working and much less carefully for the two decades that can follow it. A QLAC, short for qualified longevity annuity contract, exists for exactly that blind spot. You take a slice of your IRA or 401(k) today and use it to buy a paycheck that starts late in life, at 80 or even 85, and then pays for as long as you live. If the regular retirement account is your shade for the morning of retirement, the QLAC is the tree you plant for the afternoon.

Then there is the second trick, the one that gets the tax planners interested. Money placed in a QLAC is removed from the balance the IRS uses to calculate your required minimum distributions, the withdrawals the government forces you to take from retirement accounts in your 70s. Less balance in the formula means smaller forced withdrawals and a smaller tax bill during those years. This guide walks through how the contract works, the IRS rules that define it, the honest arithmetic of the RMD benefit, and the real costs of locking money away for that long.

What Is a QLAC?

A QLAC is a deferred income annuity bought with qualified retirement money under an IRS rulebook that earns it the RMD exclusion. Like any income annuity, it is a contract with an insurance company. You pay a premium now, and the insurer guarantees payments starting at an age you pick, continuing for your lifetime and, if you choose, your spouse's.

Because the payoff may be twenty or thirty years away, the backing matters even more than usual. A QLAC is not FDIC insured; the guarantee rests entirely on the issuing insurer's claims-paying ability, which is why the carrier's financial-strength rating deserves more of your attention than the payout quote does. The IRS also insists on plainness: a QLAC must be a fixed annuity. Variable and index-linked contracts do not qualify, so there is no market exposure inside it, just a scheduled promise.

How Does a QLAC Work?

A QLAC works in four steps: you move retirement money in, pick a start age, your RMDs shrink, and lifetime payments begin at that age. Here is the whole life of the contract.

• You carve out a slice of a retirement account. A portion of an IRA or workplace plan, up to the IRS dollar cap, moves into the QLAC. The rest of the account stays invested exactly as before.
• You pick the start age. Payments can begin any time you choose, as late as age 85 under current rules. Later start dates buy meaningfully larger checks per dollar of premium.
• The RMD math shrinks immediately. From the year of purchase, the QLAC money is excluded from the balance the IRS uses to compute your required minimum distributions, which currently begin at age 73 for most savers.
• The paycheck arrives. At your chosen age the insurer starts paying, for life. The payments are taxed as ordinary income when received, as our annuity taxation guide explains.

Notice what is missing from that list: any step where you check a balance, pick investments, or make a decision. Once a QLAC is bought and the start date is set, its whole job is to be left alone. Whether that patience suits you depends a great deal on where you are on your own retirement timeline.

How Does a QLAC Reduce RMDs?

A QLAC reduces RMDs by excluding its dollars from the balance the IRS uses to calculate them, until payments begin. Required minimum distributions are the IRS collecting on decades of tax deferral: once you reach RMD age, you must withdraw a set percentage of your retirement balance each year and pay ordinary income tax on it, whether you need the money or not. For retirees who already have enough income, RMDs are a tax bill wearing a paycheck costume. A QLAC does not make that bill vanish, but it postpones a slice of it and converts the slice into something useful.

Be honest with yourself about the size of the benefit. The RMD relief applies only to the dollars you move into the QLAC, and those payments are still fully taxable when they arrive later. For a saver in a meaningful tax bracket with more RMD income than spending needs, the deferral can be genuinely valuable. For someone who will spend every RMD dollar anyway, the tax angle is mostly a wash, and the longevity insurance has to justify the purchase on its own.

What Are the QLAC Rules and Limits?

The core limits: lifetime QLAC premiums are capped at $210,000 for 2026 (indexed annually), payments must begin by age 85, and the contract must be a fixed annuity. Congress and the IRS define a QLAC tightly, which is actually good news: the rulebook is short enough to know in full. Four rules do most of the work.

What Are the Benefits of a QLAC?

A QLAC earns its place in a plan on three fronts. First, it is the cheapest guaranteed lifetime income you can buy per dollar, because the insurer may not pay for decades and prices the wait accordingly. Second, it directly answers the scariest planning question, what if I live to 95, with a contract instead of a hope. Knowing a paycheck switches on at 85 lets you spend the rest of your savings through your 60s and 70s with less fear of the far end. Third, the RMD exclusion gives tax planners a lever: smaller forced withdrawals in your 70s can mean more control over your bracket in the years when Social Security, pensions, and RMDs tend to pile up together.

There is a quieter benefit too. A QLAC is a decision you make once, while you are sharp and have time to compare carriers carefully. It converts a complicated future problem, making savings last past 85, into a simple present one, choosing a strong insurer and a sensible amount.

What Are the Disadvantages of a QLAC?

A QLAC's main disadvantages are locked-away money, inflation exposure over decades, ordinary-income taxes when payments arrive, and long reliance on one insurer. It asks for more patience than any other product we cover, and the drawbacks deserve to be stated as bluntly as the benefits.

• The money is truly locked away. A QLAC has little to no cash value and generally cannot be surrendered for a lump sum. This is not surrender-charge locked, like a MYGA; it is by-design locked. Never fund one with money you might need as money.
• Dying early can mean a poor outcome. Without a return-of-premium option, an early death can leave heirs nothing from the QLAC. Most buyers add the refund feature, and it shrinks the paycheck in exchange.
• Inflation has decades to work. A payment sized today may buy far less at 85. Some contracts offer cost-of-living increases at an added cost, but a long-deferred fixed check is exposed to inflation in a way few products are.
• The tax benefit is a deferral, not an escape. QLAC payments are taxed as ordinary income when they arrive. You are moving taxable income later, which helps some households and simply delays the bill for others.
• The promise spans decades of insurer risk. No FDIC insurance stands behind a QLAC, only the carrier's claims-paying ability, so financial-strength ratings matter more here than anywhere. Weak-carrier warning signs are covered in our guide to annuity scams and red flags.

What Should You Consider Before Buying a QLAC?

Before buying a QLAC, weigh four choices: how much of your savings to commit, the start age, survivor and refund options, and the carrier's strength. If the tree is worth planting, these choices determine whether you plant it well. Think them through before anyone shows you a quote.

Moving forward with a QLAC

A QLAC is a specialist's tool, and that is meant as a compliment. It does two narrow jobs, guaranteed income for the far end of life and smaller forced withdrawals in the middle, better than anything else, and it does nothing else at all. If those are the jobs your plan needs done, the tree is worth planting now, while the deferral is long and the pricing is in your favor. If they are not, the honest move is to say so and look elsewhere, starting with our broader income annuities guide or the piece on when not to buy an annuity.

To go further, get a feel for how deferral changes payments on our income payout page, experiment with your own numbers in the annuity payout calculator, or let us match you with a Certified Annuity Advisor who will tell you plainly whether a QLAC fits your tax picture or whether it does not. We publish exactly how we get paid, so you can weigh the advice with clear eyes.

Pros and cons at a glance

Every product has trade-offs. Here is the honest ledger for this one, side by side.

Questions to ask before you buy

Bring these to any advisor. A good one will welcome them.

• Am I comfortable leaving this money untouched, possibly for decades?
• What is the current QLAC dollar cap, and how much of it should I use?
• At what age do I want the income to begin?
• Do I need the joint-life or return-of-premium option, at the cost of a smaller check?
• Will smaller RMDs actually help my tax picture, or would I spend those withdrawals anyway?

Frequently asked questions