Qualified Longevity Annuity Contract
A qualified longevity annuity contract (QLAC) is a special type of deferred income annuity that can be purchased inside a traditional IRA or employer-sponsored retirement plan, allowing the annuity's value to be excluded from required minimum distribution calculations until income payments begin, at a maximum start date of age 85.
QLACs were authorized by the IRS through Treasury Regulation 1.401(a)(9)-6 and have been available since 2014. They address a specific challenge: the RMD rules require increasing distributions from retirement accounts starting at age 73, but very old retirees who are still healthy may prefer to defer income and preserve assets. A QLAC allows a portion of retirement savings to be set aside for late-in-life income without counting toward the RMD base — removing that portion from the taxable distribution requirement until payments begin.
The contribution limits for QLACs were significantly expanded by the SECURE 2.0 Act of 2022. Previously, the maximum QLAC premium was the lesser of $145,000 (indexed for inflation) or 25% of the account balance. SECURE 2.0 eliminated the 25% of account balance cap and increased the dollar limit to $200,000, indexed for inflation going forward. This change makes QLACs considerably more accessible and useful for individuals with larger retirement account balances.
A QLAC is structurally a deferred income annuity (DIA) — often called a longevity annuity. The owner pays a premium today in exchange for guaranteed monthly income payments beginning at a specified future date, which under QLAC rules can be deferred up to age 85. The longer the deferral period, the higher the monthly income once payments start, because the insurer does not have to begin payments until late in life and benefits from the mortality credits of annuitants who die before the start date.
Qualifying QLAC contracts must meet several IRS requirements. They cannot be variable or indexed annuities — only fixed income annuities qualify. They cannot include a cash surrender value or liquidity provision. However, they may include a return-of-premium death benefit that refunds the unused premium to heirs if the annuitant dies before or shortly after payments begin, though this reduces the monthly income amount compared to a pure life annuity. Joint life options covering a spouse are also permitted.
From a tax perspective, the premium paid for a QLAC from a traditional IRA reduces the IRA balance used to compute RMDs in each year until the QLAC payments begin. When payments start, each payment is fully taxable as ordinary income. QLACs cannot be purchased from Roth IRAs, because Roth accounts are not subject to RMD rules during the owner's lifetime. They also cannot be used with inherited IRAs.