How to Use Qualified Longevity Annuity Contracts (QLACs) for Retirement Security

 

✅ English alt text: A four-panel black-and-white comic strip shows a financial advisor explaining QLACs to a client, discussing how they reduce RMDs, protect against longevity risk, and provide guaranteed income in retirement.

How to Use Qualified Longevity Annuity Contracts (QLACs) for Retirement Security

One of the greatest risks in retirement is outliving your savings.

As life expectancy increases, many retirees are looking for ways to ensure they don’t run out of income during their later years.

One such solution is a Qualified Longevity Annuity Contract—better known as a QLAC.

In this guide, we'll explore what QLACs are, how they work, and how you can use them to strengthen your retirement plan.

Table of Contents

What Is a QLAC?

A Qualified Longevity Annuity Contract (QLAC) is a special type of deferred annuity purchased with funds from a qualified retirement account such as a traditional IRA or 401(k).

The main feature of a QLAC is that it allows retirees to defer the start of income payments until as late as age 85.

This deferral can reduce Required Minimum Distributions (RMDs) and provide guaranteed lifetime income later in life.

How QLACs Work

When you purchase a QLAC, you invest a portion of your retirement account balance into an annuity contract.

You choose a future date (up to age 85) to begin receiving monthly income payments.

This income is guaranteed for life, regardless of market performance or how long you live.

QLACs must be purchased from an insurance company authorized to offer them under IRS rules.

Key Benefits of Using QLACs

1. Delayed RMDs: Funds invested in a QLAC are excluded from your RMD calculation until distributions begin.

2. Longevity Protection: QLACs provide a hedge against the financial risk of living longer than expected.

3. Guaranteed Income: Once payouts begin, the stream of income is reliable and stable, reducing market dependence.

4. Simplicity: QLACs are straightforward products that don’t require active management.

IRS Rules and Contribution Limits

As of 2024, the maximum amount you can contribute to a QLAC is the lesser of $200,000 or 25% of your qualifying retirement account balance.

These limits are periodically adjusted by the IRS.

QLACs can only be purchased with pre-tax retirement assets like traditional IRAs and 401(k)s, not Roth accounts.

The start date for payouts must be no later than the first day of the month after turning 85.

Who Should Consider a QLAC?

QLACs are best suited for retirees who:

  • Have sufficient savings to cover early retirement years.

  • Want to manage RMD tax exposure.

  • Value predictable, lifetime income later in life.

  • Seek a simple, “set-it-and-forget-it” product for longevity protection.

They may be especially useful for those without a pension or other form of guaranteed income.

Conclusion

Qualified Longevity Annuity Contracts offer a strategic way to reduce taxes, manage longevity risk, and ensure you don't outlive your retirement savings.

They’re not for everyone, but for the right investor, they can be a powerful retirement planning tool.

Talk to a financial advisor to determine if a QLAC fits into your long-term financial goals.

Recommended Reading

Here are additional resources to deepen your retirement planning knowledge:

How 1031 Exchanges Work

Diversify with Global REITs

Understand Robo-Advisor Fees

Build a Dividend Snowball

Sale-Leaseback Strategy

Keywords: QLAC, retirement planning, longevity risk, required minimum distributions, annuity contract