The short answer
A qualified longevity annuity contract, or QLAC, is a type of deferred income annuity you can buy inside a traditional IRA or 401(k) that begins payments at an advanced age, such as 80 or 85. Because the money used to buy a QLAC is generally excluded from the balance used to calculate required minimum distributions, it can reduce your RMDs in the meantime, and it insures against outliving your money by guaranteeing income late in life. There are IRS limits on how much you can put into a QLAC. This is educational information, not tax or investment advice.
So a QLAC defers income to advanced age, can lower RMDs on the amount used, and hedges longevity risk, within IRS limits.
How it reduces RMDs
Required minimum distributions are calculated on your retirement account balance, and money moved into a QLAC is generally not counted in that balance until QLAC payments begin. That reduces the balance driving your RMDs, potentially lowering the taxable withdrawals you must take in your 70s. Lower RMDs can also help manage income-based costs like Medicare premiums. Our guide to RMDs and IRMAA covers that connection.
The mechanism is that QLAC dollars sit outside the RMD calculation until the deferred income starts.
Who considers a QLAC
A QLAC may appeal to people worried about outliving their savings who want guaranteed income starting late in retirement, and who would benefit from lower RMDs earlier. The tradeoffs include locking up the money and the IRS contribution limits, and it is a complex, largely irreversible decision. Because tax rules and suitability matter, work with a licensed professional and tax advisor. Our annuities overview covers related products.
The takeaway: a QLAC defers income to advanced age and can trim RMDs, but it is complex and limited by IRS rules — get professional guidance before using one.
Frequently Asked Questions
What is a QLAC?
A qualified longevity annuity contract is a deferred income annuity bought inside a traditional IRA or 401(k) that begins payments at an advanced age, hedging longevity risk and potentially reducing required minimum distributions.
How does a QLAC reduce RMDs?
Money used to buy a QLAC is generally excluded from the account balance used to calculate required minimum distributions until QLAC payments begin, which can lower the taxable withdrawals you must take.
Are there limits on QLACs?
Yes. The IRS sets limits on how much you can put into a QLAC. Because the rules are complex and largely irreversible, consult a licensed professional and tax advisor.
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