QLAC
A Qualified Longevity Annuity Contract (QLAC) is a DIA funded with qualified retirement money (IRA, 401(k), or other tax-qualified plan) that meets specific IRS rules and is therefore excluded from required minimum distribution (RMD) calculations. The IRS allows up to a statutory dollar limit (the limit has historically been indexed; recent rule changes raised the cap and removed prior percentage-of-balance restrictions) to be allocated to a QLAC. Income must begin no later than age 85. The QLAC structure allows retirees to defer RMDs on the allocated amount, reducing taxable income during the deferral period.
A 72-year-old with a $1.0M IRA allocates $200,000 to a QLAC scheduled to begin income at age 85. The $200,000 is removed from the RMD calculation, reducing the annual RMD on the remaining $800,000 portion. At age 85, the QLAC begins paying monthly income for life — typically 4x to 6x the income a SPIA purchased at age 85 would produce, because of the 13-year deferral and mortality credits.
Why it matters
QLACs are the only IRS-recognized way to reduce RMDs without permanently distributing the money. For retirees who do not need the full RMD amount and are concerned about late-life income, the QLAC defers both the income and the tax. The strategy works best for consumers with substantial qualified balances and longevity in their family history.
How to evaluate
Check current IRS QLAC dollar limits before purchase. Choose the income start date (anything up to age 85). Decide on payout type (single-life produces the highest monthly income; joint-and-survivor and return-of-premium options reduce it). The contract must meet IRS QLAC rules — the carrier handles the compliance documentation but the consumer should confirm the contract is labeled as a QLAC.
In the contract
The contract is labeled "Qualified Longevity Annuity Contract" and includes specific IRS-required provisions: no cash surrender value (limited exceptions), income start by age 85, and the QLAC dollar limit attestation.
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