How a Qualified Longevity Annuity Contract Works in Your Retirement

What a may have access to Longevity Annuity Contract Does

A may have access to Longevity Annuity Contract (QLAC) is a type of annuity you can buy with money from a retirement account—specifically a traditional IRA, 401(k), 403(b), or similar plan—that doesn't count toward your required minimum distributions (RMDs) until the annuity starts paying you. In plain terms: you set aside a portion of your retirement savings to buy may provide income later in life, and the IRS lets you delay both the tax bill and the RMD calculation on that money.

The main reason people use QLACs is to reduce the amount of money the government requires them to withdraw each year starting at age 73. If you have a large retirement account, those RMDs can push you into a higher tax bracket or reduce your may be able to access for other benefits. A QLAC lets you shrink the account balance that triggers RMDs, while locking in income you know will arrive at an age you choose—typically 80, 85, or later.

Key Takeaways

• You fund a QLAC with pre-tax retirement account money, and that money does not count toward your RMD until the contract begins paying you.
• The IRS limits how much you can put into a QLAC: currently $145,000 per person (this limit changes yearly), or up to 25% of your retirement account balance, whichever is smaller.
• You choose when the annuity starts paying—usually between age 80 and 85—and it then pays you a fixed amount every month for life.
• Once you buy a QLAC, you cannot change your mind or access that money early without severe tax penalties, so this works only if you are confident you will not need it before the payout date.
• A QLAC is a contract with an insurance company, not an investment, so your payments do not rise or fall with the stock market.

The IRS Limits on How Much You Can Put In

The IRS does not let you move your entire retirement account into a QLAC. There are two caps, and whichever is smaller applies to you.

The first cap is a dollar amount that the IRS adjusts each year for inflation. For 2024, that limit is $145,000 per person. For 2025, it is $160,000. If you are married and both spouses have retirement accounts, each of you can fund a separate QLAC up to that year's limit. The second cap is 25% of your total retirement account balance. If your IRA is worth $500,000, you can put no more than $125,000 into a QLAC, even if the dollar limit is higher. If your IRA is worth $600,000, the 25% rule ($150,000) would exceed the 2024 dollar limit ($145,000), so $145,000 is what you can use.

These limits exist because the IRS wants to prevent people from sheltering their entire retirement savings from RMDs. The agency updates the dollar limit each January, so if you are considering a QLAC, check the current year's limit before you move money.

When the Annuity Starts Paying and How Much You Get

You choose the start date when you buy the QLAC. Most people pick an age between 80 and 85, though the IRS allows you to delay until age 100. Once that date arrives, the insurance company begins sending you a fixed monthly payment for the rest of your life. The amount is locked in at the time you purchase the contract and does not change, even if you live to 110.

The payment amount depends on three things: how much money you put in, how old you are when payments start, and current interest rates at the time you buy. If you fund a $100,000 QLAC and choose to start payments at 85, you will receive a different monthly amount than someone who funds $100,000 but starts at 80. The older you are when payments begin, the larger each monthly check, because the insurance company expects to pay you for fewer years.

You cannot change your mind once the contract is signed. If you need the money before the start date, you face a 10% early withdrawal penalty plus income tax on the full amount—the same penalty that applies to early IRA withdrawals. This is why a QLAC only makes sense if you are certain you will not need that money for other expenses.

How a QLAC Reduces Your Required Minimum Distributions

The money you put into a QLAC is excluded from the account balance used to calculate your RMD. Here is a concrete example: suppose you have a traditional IRA worth $1,000,000 and you turn 73 in 2024. Normally, your RMD would be roughly $36,500 (the exact percentage depends on your age). But if you move $145,000 into a QLAC before you turn 73, your RMD is calculated on $855,000 instead, reducing your required withdrawal to about $31,000.

This reduction matters most if your RMDs would otherwise push you into a higher tax bracket, reduce your Social Security benefits (because of "combined income" thresholds), or make you ineligible for other tax benefits. By shrinking the account balance that triggers RMDs, you lower your taxable income in those years. The tradeoff is that you give up access to that $145,000 until age 80 or whenever you chose to start the annuity.

What Happens to Your QLAC If You Die Before Payments Start

If you die before the annuity begins paying, your beneficiary receives the remaining balance—the amount you funded minus any fees the insurance company charged. This is called a death benefit. It is not a large amount, because the insurance company is essentially returning your principal, but it does mean the money does not vanish.

Once payments have started, most QLACs are "life only" contracts, meaning payments stop when you die and your beneficiary receives nothing further. Some people choose a "life with period certain" option instead, which guarantees payments for a set number of years (often 10 or 15) even if you die early. This option reduces your monthly payment but protects your beneficiary. The choice is yours when you buy the contract.

Why a QLAC Might Not Be Right for You

A QLAC locks away money for years, which is a serious commitment. If you think you might need that money before age 80 or 85—for a major medical expense, a family emergency, or a change in your living situation—a QLAC is the wrong choice. The 10% penalty plus income tax makes early withdrawal very expensive.

A QLAC also only helps if you have a large enough retirement account that RMDs are a real problem. If your IRA is small or you have other sources of income that already push you into a high tax bracket, the RMD reduction may not save you much in taxes. You should run the numbers with a tax professional before committing.

Finally, a QLAC is an insurance product, not an investment. Your money does not grow with the stock market. If you believe you could earn higher returns by keeping the money in your IRA and investing it, a QLAC is a trade-off: you give up growth potential in exchange for may provide income and a lower RMD. That trade-off makes sense for some people and not for others.

How to Buy a QLAC

You cannot buy a QLAC from your bank or brokerage the way you buy a regular annuity. You must work with an insurance company that offers them. Major insurers including Fidelity, Vanguard, Lincoln National, and others sell QLACs, but not all insurance companies do. You will need to contact an insurance company directly or work with a financial advisor who can help you compare rates.

The process involves choosing the insurance company, deciding how much to fund, selecting your start date, and choosing whether you want a life-only or life-with-period-certain payout. The insurance company will ask for proof that the money comes from a may have access to retirement account (your IRA custodian or plan administrator can provide this). Once the contract is signed and funded, it is final. You cannot change the terms or withdraw the money without penalties.

Frequently Asked Questions

Can I buy a QLAC with money from a Roth IRA?

No. QLACs only work with pre-tax retirement accounts like traditional IRAs, 401(k)s, 403(b)s, and similar plans. Roth IRAs are not permitted because Roth withdrawals are already tax-free and do not trigger RMDs in the same way.

What if I change my mind about when the annuity should start?

You cannot change the start date once the contract is signed. If you need the money before that date, you must withdraw it and pay the 10% early withdrawal penalty plus income tax. This is why choosing the start date carefully is important.

Does the QLAC payment count toward my RMD once it starts?

Yes. Once the annuity begins paying you, those monthly payments count as distributions from your retirement account and are included in your RMD for that year. The benefit is that the money was excluded from your RMD calculation in the years before payments started.

Can I use a QLAC if I am still working and do not have to take RMDs yet?

Yes. You can buy a QLAC before you turn 73 and before RMDs begin. This can be a good strategy if you want to lock in a lower annuity rate while you are younger, though you will not see the RMD benefit until you actually have to start taking distributions.

What if interest rates are very low when I buy the QLAC?

Your monthly payment will be lower if interest rates are low at the time you purchase. This is one reason some people wait to buy a QLAC until rates rise. However, you cannot predict future rates, and waiting also means delaying the RMD reduction benefit. A financial advisor can help you weigh the timing decision.