Qualifying Longevity Annuity Contract (QLAC)

A qualifying longevity annuity contract is a deferred income annuity purchased inside a traditional IRA or most employer defined contribution plans that satisfies a specific list of IRS requirements — chief among them a dollar limit on premiums and a commencement date no later than age 85. Meeting those requirements earns one benefit and only one: the premium paid for the contract is excluded from the account balance used to calculate required minimum distributions until the annuity starts paying. A note on the name, because it is nearly universally written wrong. The IRS and Treasury say qualifying: IRS Form 1098-Q is titled "Qualifying Longevity Annuity Contract Information," the reporting regulation at 26 CFR 1.6047-2 is "Information relating to qualifying longevity annuity contracts," and SECURE 2.0 uses the same word. Most advisor articles, and probably whatever you read before this page, say "qualified longevity annuity contract." They mean the same thing; the acronym QLAC is correct either way. This page uses the official word.

The rules live in Treasury Regulation section 1.401(a)(9)-6, with the premium limit at paragraph (q)(2)(ii) and the parallel IRA provision in section 1.408-8. You will still see the QLAC rules cited as "A-17," which was their address in the older question-and-answer format of the same regulation; that is history, not the live citation.

The most important thing to know is what the rule used to be, because the old version dominates search results and training data. When QLACs were created in 2014, the premium limit was the lesser of 25% of your account balance or a dollar cap. SECURE 2.0 section 202 eliminated the 25% test outright and raised the dollar cap from $125,000 to a base of $200,000, indexed for inflation in $10,000 increments — $210,000 for 2026. So the current rule is a single lifetime dollar limit applied across all of a person's retirement accounts, with no percentage test at all. If a calculator, article, or agent tells you your QLAC is limited to 25% of your IRA, that rule was repealed.

Now the mechanism, which is routinely overstated. A QLAC does not make required minimum distributions go away. RMDs are computed by dividing your prior year-end account balance by an IRS life expectancy factor; the QLAC's premium simply is not part of that balance while the annuity is still deferred. So your RMDs are smaller — proportionally smaller by exactly the share of the balance that went into the QLAC — and then the QLAC's own payments begin and are fully taxable as ordinary income. The tax is deferred and reshaped, not avoided. That reshaping is the actual planning value: it moves taxable income out of your sixties and seventies, when you may be managing Roth conversions or the taxation of Social Security, and into your late eighties, when spending is often concentrated on health care.

Section 202 also added two consumer-friendly provisions worth knowing. A contract may include a 90-day free-look period, so a purchase can be rescinded within that window and still be treated as a QLAC. And where a joint-and-survivor QLAC covers a spouse who later becomes a former spouse, the survivor benefit can be preserved after divorce where a qualifying domestic relations order has been issued — previously a real trap in late-life divorces.

Three boundaries. First, the RMD start ages themselves belong to their own page: RMDs generally begin at 73, rising to 75 for a later cohort, and a QLAC changes none of that. Second, because the QLAC rules work by shrinking the balance that RMDs are computed on, they only accomplish anything in an account that has lifetime RMDs. A Roth IRA has none, and the regulations follow that logic explicitly: a contract bought under a Roth IRA is not treated as a contract intended to be a QLAC, and a QLAC that is later rolled over or converted into a Roth IRA stops being treated as one from that date. The natural home for a QLAC is a traditional IRA or a traditional balance in an employer plan that permits it. Third and last, the product itself is just a deferred income annuity, so the evaluation questions — insurer strength, whether payments are level or increasing, what happens if you die before 85 — are the ordinary annuity questions, and the risk it addresses is ordinary longevity risk.

Mechanically: you buy a deferred income annuity inside a traditional IRA or an eligible plan, keeping total QLAC premiums within the IRS dollar limit across all your accounts; the insurer reports the contract to you and the IRS on Form 1098-Q; the premium drops out of the balance used to compute your RMDs; and no later than age 85 the contract begins paying, with every payment taxable as ordinary income.

A hypothetical example. Dana, 71, has $960,000 in a traditional IRA and no pension. She commits $150,000 to a QLAC that begins paying at 85. That premium is 15.6% of her balance, so for the years between the purchase and age 85, each annual RMD is calculated on a balance that is 15.6% smaller — and because the RMD is just the balance divided by a life expectancy factor, her RMD is 15.6% smaller too, every single year. If her RMD would have been $36,000 in a given year, it is roughly $30,400 instead, leaving about $5,600 of income she is not forced to recognize that year and can, for instance, replace with a Roth conversion she controls the size of.

Then the bill arrives. At 85 the QLAC turns on — say a hypothetical $2,300 a month, or $27,600 a year, all of it ordinary income, on top of whatever RMDs the rest of the IRA still generates. Whether Dana comes out ahead depends on three things: how long she lives, whether her marginal rate in her late eighties is lower than in her seventies, and whether she needed that $5,600 a year of flexibility for something else. (Premium, payout and RMD figures here are illustrative; the real payout depends on age, interest rates, and insurer, and the real limit is the current IRS dollar cap.)

Two failure modes worth naming. If Dana dies at 80, a QLAC with no return-of-premium or joint feature pays nothing — the deferral that makes the eventual income large is the same deferral that creates a long window with no payments. And the money is committed: a QLAC is illiquid by design, which is precisely why the IRS caps how much of a retirement account can go into one.

Pros

• Guarantees income in advanced old age, which is the part of a retirement plan hardest to fund from a portfolio.
• Reduces every required minimum distribution between purchase and commencement, in exact proportion to the premium, creating room for Roth conversions or lower taxable income.
• Because payments begin so late, the income per dollar of premium is far higher than an immediate annuity would provide.
• SECURE 2.0 removed the 25%-of-balance test, so the limit no longer shrinks for savers with smaller accounts.
• A permitted 90-day free-look provision allows a purchase to be undone shortly after the fact.

Cons

• Illiquid and generally irrevocable after the free-look period — this premium is not available for anything else.
• Nothing may ever be paid if you die before payments start, unless you pay for a return-of-premium or joint-and-survivor feature that reduces the income.
• It defers tax rather than avoiding it, and the eventual payments are fully taxable ordinary income arriving all at once each year.
• Level payments starting at 85 will have lost a great deal of purchasing power by the time they arrive, unless the contract includes an increasing option.
• Not available as a QLAC inside a Roth IRA — the regulations do not treat a Roth-purchased contract as one, and there would be no lifetime RMD to shift anyway.
• The guarantee depends on the insurer, backed only by state guaranty associations at limits that vary by state.