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QLACs: Using an Annuity to Delay RMDs

By Bob Lobclaw · August 2, 2026

A Qualified Longevity Annuity Contract (QLAC) is a deferred income annuity purchased inside an IRA or employer plan that does something no other retirement-account asset can: the dollars used to buy it are excluded from the required minimum distribution calculation entirely, right up until the annuity itself starts paying out — as late as age 85.

How it works

Normally, every dollar in a traditional IRA or 401(k) counts toward the account balance used to calculate RMDs each year. A QLAC carves out a slice of that balance, uses it to buy a deferred income annuity, and removes that slice from the RMD calculation going forward — even though the money technically still belongs to the retirement account. In exchange, the annuity doesn’t start paying income until a date the owner chooses, no later than age 85, at which point it pays a guaranteed income stream (typically for life) regardless of how markets performed or how long the owner lives.

The result is a smaller RMD-eligible balance in the years before the QLAC starts paying, and a guaranteed paycheck later in life — effectively longevity insurance bought with pre-tax retirement dollars, priced using mortality pooling rather than personal savings alone.

Where the rules came from

QLACs were created by Treasury regulations in 2014, explicitly to solve a problem the IRS itself had created: RMD rules discouraged retirees from buying longevity annuities, because any money used to buy one still counted toward the RMD base even though it produced no current income. The original 2014 rule let retirees exclude the lesser of $125,000 (indexed for inflation) or 25% of the account balance. That 25%-of-balance cap made QLACs impractical for people with smaller accounts and irrelevant for very large ones.

SECURE 2.0, effective in 2023, simplified this significantly: it eliminated the 25% cap entirely and set a flat dollar limit of $200,000, indexed for inflation. For 2026, that indexed limit is $210,000 — a lifetime cap per individual (not per household, and not per account), so someone with several IRAs can combine QLAC purchases across them up to the single limit.

Who a QLAC is actually for

A QLAC is a fit for a fairly specific situation: a retiree who doesn’t need their full RMD income currently, is concerned about outliving their other assets, and would rather lock in guaranteed income starting later than keep managing that slice of the portfolio themselves. It functions similarly to delaying Social Security — trading money now (or income now) for a larger guaranteed check later — but funded from a retirement account rather than from Social Security’s delayed-credit formula. See the Social Security claiming age article for the equivalent trade-off on the benefits side.

It’s a poor fit for a retiree who needs steady access to that money for spending or emergencies before the annuity’s start date, since QLAC funds are generally illiquid once purchased.

Trade-offs to weigh

  • Illiquidity. Once purchased, the money is generally locked into the contract. Some QLACs offer a “return of premium” death benefit or a cash-refund feature for heirs if the owner dies before recouping the premium, but those riders reduce the monthly income the contract pays.
  • Mortality risk cuts both ways. The insurer’s pricing relies on pooling — people who die early subsidize the income of people who live long. A QLAC only pays off financially relative to self-managing the money if the owner lives well into their 80s or beyond; someone who dies shortly after the payout start date (without a refund rider) effectively forfeits the unpaid balance to the pool.
  • Rates depend on when you buy. Like any annuity, the income a QLAC promises is set largely by prevailing interest rates at purchase — a QLAC bought in a low-rate environment locks in a lower payout than one bought when rates are higher.
  • Inflation isn’t automatically covered. A level QLAC payment loses purchasing power over the deferral period and payout years unless the contract includes a cost-of-living adjustment, which further reduces the starting income amount.

The bottom line

A QLAC is a narrow but genuinely useful tool: it lowers RMDs during the years right after RMDs typically start, and converts that deferred slice into guaranteed income later in life, insuring against the risk of outliving the rest of the portfolio. It isn’t a growth investment or an emergency fund, and the 2026 lifetime cap of $210,000 limits how much of an RMD problem it can solve on its own. For the mechanics of how RMDs are calculated in the first place, see the RMDs explained article.

Educational content, not personalized financial advice — see the disclaimer.