Qualified Longevity Annuity Contract (QLAC): Longevity Insurance
Protect against the risk of outliving your money with this special annuity that starts paying at age 85.
Key Takeaways
- 1QLAC provides guaranteed income starting at age 80-85
- 2Protects against the risk of living longer than expected
- 3Reduces current RMDs by excluding QLAC value from calculation
- 42026 maximum: $200,000 or 25% of retirement accounts
- 5Payments fixed at purchase - higher per dollar than immediate annuities
- 6No cash value - you're buying pure longevity insurance
- 7Consider if you have longevity in your family
What Is a Qualified Longevity Annuity Contract?
A QLAC is a special type of deferred income annuity purchased with retirement account funds. Unlike regular annuities that start payments soon, a QLAC begins payments much later - typically age 80 or 85. Think of it as longevity insurance.
- Deferred income annuity starting at age 80-85
- Purchased with IRA, 401(k), or other qualified retirement funds
- Provides guaranteed income you cannot outlive
- Treasury Department created QLAC rules in 2014
- Maximum purchase: $200,000 or 25% of account balance
- Payments start as late as age 85
Why "Qualified"?
The "qualified" designation means QLACs get special tax treatment - the funds used to buy the QLAC are excluded from RMD calculations until payments begin.
How QLACs Work
You purchase a QLAC with a lump sum from your retirement account. That money then grows at a guaranteed rate until your chosen start date, when payments begin.
| Purchase Details | Example |
|---|---|
| Purchase Age | 65 |
| Amount Invested | $100,000 |
| Payment Start Age | 85 |
| Deferral Period | 20 years |
| Monthly Payment at 85 | ~$3,500-4,500 |
| Payments Continue | For life |
Actual payments vary by insurer, rates, and options selected
The Power of Deferral
$100,000 at age 65 might buy $600/month starting immediately, or $4,000/month starting at 85. The long deferral dramatically increases payments per dollar invested.
The RMD Reduction Benefit
A key advantage of QLACs is reducing your Required Minimum Distributions. QLAC funds are excluded from your RMD calculation until payments begin.
- QLAC value not included in RMD calculations
- Reduces taxable income from forced distributions
- Particularly valuable if you don't need RMD income
- Tax savings can be substantial over time
- RMD calculation resumes when QLAC payments start
RMD Reduction Example
$1 million IRA with $200,000 in QLAC. RMD calculated on $800,000 instead of $1 million. At age 75, that's about $4,000 less in required distribution annually.
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Who Should Consider a QLAC?
QLACs aren't for everyone. They work best in specific situations.
- **Family longevity**: If parents/grandparents lived into 90s
- **Other income sources**: Don't need all retirement funds early
- **RMD reduction desired**: Want to minimize taxable distributions
- **Worried about outliving money**: Want guaranteed late-life income
- **Conservative**: Willing to trade growth potential for guarantees
Not Ideal If...
QLACs are NOT ideal if: you have health issues reducing life expectancy, need access to all funds, want to leave maximum to heirs, or are uncomfortable with irrevocable decisions.
QLAC Pros and Cons
Consider both sides before purchasing.
| Pros | Cons |
|---|---|
| Guaranteed lifetime income | Irrevocable - can't get money back |
| Reduces current RMDs | Die early = lose money |
| High payments per dollar | No inflation adjustment (usually) |
| Longevity protection | Insurance company credit risk |
| Simple and automatic | Opportunity cost (could invest instead) |
QLACs in Your Overall Retirement Strategy
A QLAC is one tool in comprehensive retirement planning. It works alongside other assets including precious metals.
- QLAC covers longevity risk; gold covers inflation and crisis risk
- Use 10-20% of retirement for QLAC, leaving rest for flexibility
- Gold IRA provides growth potential and inflation hedge
- QLAC guarantees income; gold preserves purchasing power
- Diversification across strategies reduces overall risk
- Balance guaranteed income with accessible assets
Frequently Asked Questions
1What happens if I die before QLAC payments start?
Standard QLACs forfeit remaining value - that's how they pay high rates. However, you can add a return-of-premium rider (reduces payments) that returns your premium to beneficiaries if you die before receiving it in payments.
2Can I buy a QLAC in my Roth IRA?
Technically yes, but it makes little sense. Roth IRAs have no RMDs (while you're alive), so the RMD reduction benefit doesn't apply. You'd be giving up tax-free growth for guaranteed payments.
3What's the difference between QLAC and regular deferred annuity?
QLACs have special IRS rules: they can only be bought with qualified retirement funds, have a $200,000 limit, and are excluded from RMDs. Regular deferred annuities don't have these special tax treatments.
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