What Is a QLAC? Qualified Longevity Annuity Contracts Explained

Key Takeaways

• A QLAC is a type of deferred annuity funded from eligible retirement accounts that starts QLAC payments later in retirement, up to the maximum age of 85
• QLAC rules under the SECURE Act allow certain assets to be excluded from the balance used in your required minimum distribution (RMD) calculation
• Potential benefits include later-life income, a predictable income stream and a temporarily lower RMD on the non-QLAC portion of your accounts
• Key risks include illiquidity, inflation and purchasing-power risk, contract complexity and dependence on an insurance company’s financial strength
• Decisions about QLACs are highly individual and are best made as part of a comprehensive retirement strategy with help from a tax professional or financial advisor*

No one wants to run out of money in retirement, and it’s understandable why people fear not having adequate income to pay for necessities like long-term care or to cover the rising costs of inflation.

For retirees with pretax retirement savings accounts like 401(k)s and individual retirement accounts (IRAs), the annuity industry has a product for you: qualified longevity annuity contracts (QLACs). A QLAC provides guaranteed monthly payments for life in exchange for a portion of your pretax retirement savings. But as with any financial contract, you should carefully analyze the pros, cons and your unique situation before committing a portion of your retirement funds.

What Is a Qualified Longevity Annuity Contract?

A QLAC is a contract with an insurance company where you pay a lump-sum premium today in exchange for a promise of future income starting years down the road. It belongs to the broader family of deferred income annuities, but it has a "qualified" status, meaning it meets specific IRS rules that allow it to be held within tax-advantaged retirement accounts.

How a QLAC Works

When you purchase a QLAC, you lock in several key terms in the annuity contract:

• Funding source: QLACs are generally funded from a traditional IRA, rollover IRA or certain employer plans if the plan sponsor allows them. Roth IRA and taxable brokerage accounts are not eligible funding sources. Once funds leave your account to make a premium payment, you no longer manage those dollars as part of your portfolio.
• Start date: You choose a future start date for income. IRS rules allow QLAC income to begin as late as age 85. The later the start date, generally the larger each payment, since the contract is designed to spread income over a shorter expected period.
• Payout structure: You can often choose single life or joint life payments. Single life means income lasts for your lifetime only. Joint life means payments continue over two lives, typically yours and your spouse’s.
• Death benefit: Some contracts provide little or no death benefit if you die before or soon after the start date. Others offer a return-of-premium style benefit for heirs. More generous death benefits usually mean lower ongoing income.
• Optional riders: Certain QLACs may offer riders that cover specific situations, like adjusting payments over time to address inflation. Riders can add complexity and may come with added costs that reduce the level of guaranteed income.

Every QLAC is governed by a legal contract, so understanding these mechanics before you commit funds is important.

How a QLAC Interacts With Your Retirement Accounts

One of the most technical aspects of a QLAC is how it sits within your existing retirement framework. Not every account is eligible. You can generally fund a QLAC using a traditional IRA, a rollover IRA or certain employer-sponsored plans like a 401(k) or 403(b), provided the plan sponsor allows it. Notably, you cannot use a Roth IRA or taxable brokerage accounts to fund a QLAC.

IRS Limits and Rules

Under the SECURE Act 2.0^[i], the rules governing QLACs were significantly expanded to make them more accessible. As of 2026, the QLAC limit (the maximum amount of retirement assets you can use to purchase these contracts) is $210,000^[ii]. Previously, there was a rule that limited QLAC premiums to 25% of your account balance, but that "25% rule" has been eliminated.

The RMD Connection

The primary "selling point" for many is the RMD calculation. Normally, the IRS requires you to take a minimum distribution from your traditional IRA starting at age 73 (or 75 for those reaching age 73 after 2032).^[iii] Because QLAC premiums are excluded from your account balance, a QLAC allows for a lower RMD on your remaining assets.

However, it is vital to understand that this is about timing, not permanent tax avoidance. When those QLAC payments eventually start, they are taxed as ordinary income. In some cases, the combination of Social Security, other RMDs and QLAC payments could actually push a retiree into a higher tax bracket later in life.

Potential Benefits of a QLAC

For a specific subset of investors, a QLAC offers certain psychological and structural advantages:

• Longevity protection: If you have a family history of living to 100, a QLAC can act as a hedge against the risk of exhausting your other personal wealth if your retirement appears underfunded.
• RMD management: For investors who have more than enough income and are frustrated by "forced" distributions, the ability to defer taxes on up to $210,000 can be an attractive short-term tactical move.

Six Risks of a QLAC to Consider

In contrast to these narrow benefits, the "cost" of a QLAC is often higher than the sticker price. The following risks usually outweigh the utility of these contracts for most investors:

1. Illiquidity and Irrevocability
   Once a QLAC is in place and the free-look period has passed, you generally cannot unwind the annuity contract or access the principal. You cannot “break” a QLAC to pay for a medical emergency, a new roof or another unexpected expense. That loss of flexibility can become a significant drawback if your needs or priorities change later in retirement.
2. Inflation and Purchasing-Power Risk
   Many QLACs offer level payments that do not automatically adjust for inflation. If you buy a QLAC at 65 that pays $2,000 a month starting at 85, those dollars may buy considerably less in twenty years than they do today. For example, $2000 in 2025 dollars has the same purchasing power as $1,212 in 2005^[iv] dollars—a 40% loss in value. Some contracts include an income rider or escalation feature to help address inflation, but these often come with added cost and can reduce the initial payout.
3. Opportunity Cost
   When you commit funds to an insurance company inside a QLAC, those dollars no longer participate in market growth or a flexible investment strategy. You give up the ability to adjust your allocation as markets, tax rules or personal circumstances evolve. Over the years between purchase and payout, that foregone flexibility and potential compounding can represent a meaningful opportunity cost.
4. Contract Complexity
   QLACs can be complicated. Riders, death benefits and payout options vary widely from one insurer to another, and small differences in contract language can have large effects on how and when you receive income. These features often come with additional fees or trade-offs, making it hard to compare one QLAC with another or to know exactly what you are paying for without a careful review of the fine print.
5. Insurer Credit Risk
   A QLAC is only as strong as the insurance company that issues it. State guaranty associations may provide some backstop if an insurer fails, but coverage limits vary by state and may not protect the full value of a large contract. Unlike direct ownership of stocks and bonds, an annuity exposes you to the issuer’s credit risk, so evaluating the company’s financial strength is an important part of the decision.
6. Tax Nuance and RMD Timing
   One of the most discussed features of QLACs is their effect on required minimum distributions. Deferring income through a QLAC can reduce RMDs on non-QLAC assets for a time, but it can also concentrate taxable income into later years when QLAC payments begin. That pattern may affect your tax bracket, Medicare premiums and other planning strategies such as Roth conversions or charitable giving. QLACs change the timing of taxes, not whether taxes are due.

When Does a QLAC Make Sense?

Given these pros and cons, a QLAC is rarely a first-line retirement solution. It may be more appropriate when:

• You have substantial traditional IRA or plan assets and do not depend on the specific funds you would allocate to the QLAC for near-term spending
• You are strongly focused on longevity risk and want income that begins later in life rather than immediately
• You have addressed other core elements of your financial life, such as emergency savings, debt levels, basic financial planning and insurance coverage

When a QLAC Might Not be Appropriate

Conversely, many investors should avoid QLACs if:

• Health concerns: If you have a shorter time horizon, you may not see any payment from a contract.
• Leaving a legacy: If you want to leave a legacy for heirs or charity, a QLAC is a poor tool. Once the annuitant (and perhaps a spouse) passes away, the remaining value typically vanishes.
• Inflation concerns: If you do not have other assets that can grow to keep pace with rising costs, a fixed QLAC payment may not provide the financial security you expect.

These are general illustrations, not personalized recommendations. We recommend talking with a qualified tax professional or financial adviser about your specific situation.

Key Questions Before You Buy a QLAC

Before committing a significant portion of your retirement to an insurance company, ask yourself and your financial adviser these questions:

1. How much of my portfolio am I truly comfortable locking up in an illiquid, irrevocable contract?
2. How will these payments fit alongside my Social Security, pensions and other income sources?
3. Do I fully understand the death benefit? What would my beneficiaries receive if I pass away before contract payments begin?
4. How will the future QLAC payments affect my tax brackets and Medicare premiums later in life?
5. Have I compared this to other available assets in my investment portfolio?

How Fisher Investments Can Help You Evaluate QLACs

Fisher Investments is a fiduciary investment adviser, not an insurance company. We do not issue QLACs or sell annuity products. Instead, we help clients evaluate whether tools like a QLAC fit within their broader retirement and investment plans.

We look at your overall situation, including IRA assets, employer plans, taxable accounts and any existing annuity contracts, then model potential retirement income with and without a QLAC. That can help highlight trade offs in cash flow, flexibility and legacy planning and explore alternatives that may align more closely with your long term objectives.

If you are considering a QLAC or already own an annuity you are unsure about, you may benefit from discussing how it fits your overall portfolio and retirement goals with Fisher Investments and your tax professional.

Download our Guide to Retirement Income to learn more about investing for retirement, or request an appointment with a Fisher Investments representative today.

*Fisher Investments does not provide tax, legal or accounting advice.

[i] https://www.congress.gov/bill/117th-congress/house-bill/2617/text
[ii] Source: Internal Revenue Service, as of 1/30/2026. 2026 Amounts Relating to Retirement Plans and IRAs, as Adjusted for Changes in Cost-of-Living - https://www.irs.gov/pub/irs-drop/n-25-67.pdf
[iii] Source: Internal Revenue Service, as of 1/30/2026. Required Minimum Distributions.
[iv] Source: Federal Reserve Bank of Minneapolis, as of 1/30/2026. Inflation Calculator

This article is for informational and educational purposes only and should not be construed as investment advice or a recommendation regarding any particular investment strategy or course of action. The information presented is general in nature and does not take into account the individual circumstances, objectives, or financial situation of any specific investor. We provide our general comments to you based on information we believe to be reliable. There can be no assurances that we will continue to hold this view; and we may change our views at any time based on new information, analysis or reconsideration. Some of the information we have produced for you may have been obtained from a third-party source that is not affiliated with Fisher Investments.

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