What is a QLAC and Should You Invest in One? 4 Experts Weigh In

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Last Updated on: 4th February 2026, 02:42 pm

A Qualified Longevity Annuity Contract (QLAC) is an annuity contract that can be funded with certain tax-advantaged retirement dollars, like a traditional IRA or an employer plan. The big idea is simple: you carve out a portion of your retirement savings today, and in exchange, an insurance company promises a guaranteed income stream later in life. Like any retirement tool, QLACs come with real upsides and real tradeoffs. Below, four financial experts explain what to watch for, plus the key rule changes you should know for 2026.

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If you’re comparing “guaranteed income later” tools like QLACs alongside long-term inflation hedges (like physical gold in a self-directed IRA), this free kit lays out the basics in plain English.

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Key QLAC Updates for 2026 (What’s Actually True Right Now)

One more practical note: QLACs are usually discussed alongside RMD planning, but they are not the only lever. Depending on your bigger strategy, you might also be looking at rollover mechanics (our rollover guide is here), a self-directed IRA structure, and the tax treatment of distributions (a plain-English tax overview).

👍 Pros (why some retirees like QLACs)

• Longevity protection: you create an income “floor” later in life.
• RMD management: the QLAC value can be excluded from RMD calculations until payouts begin (subject to rules).
• Simplicity: you’re swapping market uncertainty for a contractual guarantee (as strong as the insurer).

👎 Cons (the tradeoffs people underestimate)

• Liquidity is limited: once funds are committed, you usually cannot “change your mind” without consequences.
• Inflation risk: a fixed future payment can lose purchasing power over decades.
• Insurer risk: payments depend on the insurer’s claims-paying ability.
• Opportunity cost: you might give up higher expected returns from other assets.

There Are Limits To Your Contribution

Editor note (2026): The quote below references the older “$130,000 and 25%” framework that applied before SECURE 2.0 changes. For 2026, the IRS premium cap is $210,000, and the 25% cap generally does not apply to contracts purchased on or after Dec 29, 2022 (see the IRS links in the updates section above).

“The most important factor to know about QLACs is that there are limits to your contribution. The maximum you can defer in this special type of annuity is $130,000, BUT you must have at least $520,000 in your IRA and/or 401(k) accounts to reach that maximum. If you're under that total amount, then you can only contribute 25% of your combined IRA/401(k) totals.”

Adam M. Hyers, President, Hyers and Associates, Inc

Investors Are Permitted To Place Up To 25% Of Their Retirement Portfolio, Or $125,000 (Whichever Is Less), Into A QLAC

Editor note (2026): The quote below uses legacy numbers ($125,000 and 25%). The modern framework is an inflation-adjusted dollar cap (and for 2026 it is $210,000). The longevity concept, tradeoffs, and planning logic are still the same.

“A QLAC is a deferred annuity where you invest money today and later, you turn on a monthly income stream that is guaranteed for life. Previously, deferred annuities weren't allowed in IRAs, because you had to take Required Minimum Distributions at age 70 1/2. Luckily, the IRS saw that many retirees would benefit from this strategy and provided relief from RMDs when using a QLAC.

Since 2014, Investors are permitted to place up to 25% of their retirement portfolio, or $125,000 (whichever is less), into a QLAC and not have to pay any RMDs during the deferral period. Once you do start the income stream, the distributions will be taxable, of course.

As of 2024, the contribution limit for QLACs has been increased to $200,000 (previously $130,000), or 25% of your total IRA/401(k) balance, whichever is lower. This increase allows retirees more flexibility in deferring their Required Minimum Distributions (RMDs).

For example, a 70-year-old male could invest $125,000 into a QLAC avoid RMDs on that money. Later, at age 84, they could begin receiving $31,033 a year for life. If the owner passes away, any remaining principal will go to their heirs.

In retirement planning, we refer to the possibility of outliving your money as “longevity risk”, and a QLAC is designed to address that risk by providing an additional income stream once you reach a more advanced age. Payouts must begin by age 85. A QLAC is a good choice if you have high longevity factors: excellent health, family history of long lifespans, etc. If you are wondering if your money will still be around at age 92, then you’re a good candidate for a QLAC.

QLACs are also popular for retirees who don't need their full RMDs at age 70 1/2, perhaps due to a work, pension, or other sources of income. The QLAC will allow them to reduce their RMDs while also providing for future income which will help offset inflation or future health care costs.”

Scott Stratton, CFP®, CFA, President, Good Life Wealth Management LLC

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Obtain Multiple Quotes, Familiarize Yourself With The Fine Print And Discuss The Contract In Detail With A Trusted Advisor

Editor note (2026): This quote references the older $130,000 limit. The core warnings still apply: contract details, inflation, death benefits, and insurer strength matter a lot.

“To start, a QLAC is a deferred income annuity. An annuity is simply a contract between an investor and an insurance company. The contract governs the exchange of the investor's savings for the insurance company's assurance that payments will be made to the investor in the future.

A QLAC is referred to as a deferred income annuity because the contract states that the investor will defer receiving income (distributions) from the insurance company until a later date.

QLACs are also referred to as longevity annuities, a moniker that helps to understand its intended purpose. For investors concerned about the depletion of assets if they live longer than expected, a longevity annuity offers some assurance. In this case, the insurance company agrees to defer the initial payment until some point in the future and then continue payments until death. The longer the investor delays or defers payment, the higher the payment amount. The contract has thus shifted the risk for longevity to the insurance company. Alternatively, premature death favors the insurance company.

QLACs were created and quickly came into prominence in July of 2014 with Treasury Decision (TD) 9673 because of their preferred treatment within IRAs. The IRS now allows an investor to place up to 25% (but not to exceed $130,000) of their IRA into a QLAC. Importantly, the dollar amount invested in the QLAC is not considered when calculating the individual's taxable required minimum distribution (RMD). The value of the QLAC can be removed from RMD calculation until payments begin or age 85, whichever occurs first. Age 85 also is the latest date that an investor can defer payment from the insurance company.

The ability to defer taxation via the postponement of the required minimum distributions (RMDs) while receiving a guaranteed income stream (subject to the claims-paying ability of the insurer) that cannot be outlived are attractive features. Contracts may also other features including the ability to extend payments for the life of a surviving spouse, further increasing the contract's perceived attractiveness.

But investors should be wary of the potential caveats. First, investors should be fully aware of the contract provisions regarding death in two circumstances: prior to receiving income and prior to receiving all of the funds initially invested. Some contracts may force an investor who dies shortly after receiving deferred income to forfeit the remaining balance, leaving nothing for the surviving spouse or other heirs. Second, investors should be mindful of the potential impact of inflation. The value of a guaranteed payment in the future is eroded by the rate of inflation. This may be significant over multiple decades. Third, investors should be mindful that the insurance company is a for-profit entity. While promoters may suggest QLACs have no fees, the insurance company is expecting to earn a profit. The cost is simply embedded in the future payment. They don't disclose the extent to which future income is reduced to cover their expenses, the agent's selling commission or their expected profit margin.

A prudent investor considering an investment in a QLAC should obtain multiple quotes, familiarize themselves with the fine print and discuss the contract in detail with a trusted advisor (separate from the selling agent) before making a multi-year commitment.”

Brendan Willmann, CFP® and Enrolled Agent, Granada Wealth Management

A QLAC Works For People Who Want To Keep More Of Their Retirement Plan Intact And Tax-Deferred

Editor note (2026): This section includes older “age 70½” and “$125k/$130k” figures. The planning concept is still relevant, but modern RMD age is generally 73, and the 2026 QLAC premium cap is $210,000.

“When you reach age 70½, you must start taking required minimum distributions (RMDs) from your IRA, 401(k), SEP or another retirement account. The extra income may be nice, but there are drawbacks.

If you don’t need the income, RMDs cause two problems: they erode the value of your retirement accounts and increase your taxable income.

There is just one way to reduce your RMDs: buying a qualified longevity annuity contract. A QLAC works for people who want to keep more of their retirement plan intact and tax-deferred.

A QLAC is a type of deferred income annuity designed to meet specific IRS requirements that qualify it. The money in the QLAC is excluded from assets on which future RMDs are calculated.

QLACs have an accumulation or deferral phase where interest earnings are held and reinvested by the insurance company, and a payout phase also called annuitization. Future income is guaranteed. You know the expected payout before depositing your funds.

You pay a single premium and then choose when to start receiving a stream of lifetime income—by age 85 at the latest. The QLAC thus lets you delay RMDs on some of your retirement-plan money up to 14 ½ years.

For instance, at age 75, $125,000 in a QLAC avoids $5,459 in RMDs you’d otherwise have to accept. At age 80, you’d be exempt from $6,684 in RMDs.

Delaying RMDs isn’t the only benefit. The biggest advantage is that you’ll create a larger stream of income you can’t outlive. The earlier you buy the QLAC, the longer you’ll get to build up principal and the bigger payout you’ll ultimately get.

Because you’ll have a new source of guaranteed income coming available at the time of your choosing, you may be comfortable taking more market risk with other assets in your plan.

Since the QLAC is a great deal for retirees who can afford to defer some income, the IRS imposes strict limits. Over your lifetime, you cannot allocate more than 25% of the total of all your IRAs or $130,000, whichever is less, in a QLAC. In future years, the current (2024) $200,000 limit will be adjusted for inflation.

As with any deferred income annuity, you’re no longer in control of the principal with a QLAC. Your money is tied up because you made a deal with the insurer that gives you some great benefits in exchange.

You can choose an individual or a joint lifetime payout, with the latter paying out income until the second spouse dies. The joint payee must be a spouse, which satisfies IRS death-transfer rules. There’s also a cash-refund option, in which beneficiaries can get a lump-sum payout for any of the initial deposit premium not yet paid out at the death of the annuitant(s).

The $130,000/25 percent limit is per person. For example, if the husband has $600,000 in his IRA, he could allocate up to $130,000 to a QLAC. If the wife has $350,000 in her IRA, she could put up to $87,500, or 25 percent, in a QLAC.”

Ken Nuss, CEO, AnnuityAdvantage

Practical Takeaways (If You’re Considering a QLAC in 2026)

• Start with the rules, then shop rates: Know the current cap ($210,000 for 2026), then get multiple quotes from highly rated insurers.
• Be honest about inflation: If the payout is fixed, pressure-test it against a long retirement.
• Choose your “death benefit” intentionally: Cash-refund or spousal continuation options can matter more than people think.
• Match the tool to the problem: A QLAC is meant to hedge longevity risk, not to maximize upside.
• Zoom out: If you’re also exploring non-correlated hedges in retirement accounts, read the basics on traditional IRA rules and how different retirement plans fit together.

QLAC FAQ (2026)

Bottom line: A QLAC can be a smart tool for retirees who genuinely want guaranteed income later in life and who can afford to lock up a portion of savings today. Just make sure you’re using current rules (especially the updated premium cap and the repeal of the 25% limit for new contracts), and always read the fine print before committing.

Disclaimer: This article is for educational purposes only and is not individualized tax, legal, or investment advice. Consider speaking with a qualified professional who is not compensated for selling you a specific annuity product.