A Qualified Longevity Annuity Contract, commonly known as a QLAC, is one of the more overlooked tools available to retirees who are concerned about required minimum distributions and the possibility of outliving their savings. Although QLACs have existed since 2014, changes under SECURE 2.0 have made them more flexible and more relevant to retirement planning in 2026. Here is what a QLAC is, how it works, and who should consider one.
What Is a QLAC?
A QLAC is a deferred income annuity purchased with funds from a traditional IRA or an employer-sponsored retirement plan, such as a 401(k). In exchange for a lump-sum premium, an insurance company agrees to pay you a guaranteed stream of income starting at a future date, generally later in retirement. Unlike an immediate annuity, income payments from a QLAC are delayed, often for a decade or more.
What sets a QLAC apart from other annuities is its special IRS recognition. Because the account holder is required to eventually draw down retirement accounts through required minimum distributions, or RMDs, the government created a specific carve-out that allows a portion of retirement savings to be moved into a QLAC without counting toward the RMD calculation until income payments actually begin.
How a QLAC Lowers Your RMDs
Required minimum distributions are generally calculated by dividing your prior year-end account balance by an IRS life expectancy factor. The larger your account balance, the larger your RMD, and the more taxable income you are forced to recognize each year, whether you need the cash or not.
When you use retirement funds to purchase a QLAC, that premium amount is removed from the balance used to calculate RMDs. In effect, a QLAC lets you carve out a portion of your IRA or 401(k), shrink your annual RMD, and defer the related tax bill until the QLAC itself begins paying income, which by law must start no later than the first day of the month following your 85th birthday.
2026 QLAC Contribution Limits
Before SECURE 2.0, QLAC purchases were capped at the lesser of $145,000 or 25 percent of a retiree’s account balance. That formula limited how much larger account holders could shelter and created confusion for anyone trying to calculate their maximum contribution.
SECURE 2.0 replaced that formula with a simple, flat dollar limit. For 2026, the lifetime maximum premium that can be used to fund a QLAC is $210,000 per individual, a figure that is indexed for inflation and applies regardless of the size of your overall retirement account balance. A married couple, each with their own IRA, can each fund a QLAC up to this limit using their own retirement assets.
QLACs can be funded with money from a traditional IRA or most qualified employer retirement plans. They generally cannot be purchased with funds from a Roth IRA or a defined benefit pension plan.
Key 2026 Facts at a Glance
- Maximum lifetime premium: $210,000 per individual, indexed for inflation
- Funding source: traditional IRA or qualified employer retirement plan
- Latest possible income start date: the month after your 85th birthday
- Premium dollars are excluded from RMD calculations until payments begin
Advantages of a QLAC
The primary appeal of a QLAC is the combination of a smaller current tax bill and a guaranteed paycheck later in life. Because the premium is excluded from your RMD calculation, moving money into a QLAC can meaningfully reduce your taxable income in the years before payments start, which may also help limit taxation of Social Security benefits and reduce exposure to Medicare premium surcharges.
A QLAC also functions as longevity insurance. Once income payments begin, they continue for as long as you live, regardless of how long that turns out to be. That guarantee is backed by the issuing insurance company, and payments are insulated from stock market downturns, which can be reassuring for retirees who worry about running out of money in their nineties.
Drawbacks to Consider
A QLAC is not the right fit for everyone. The premium you commit is generally illiquid; there are no lump-sum withdrawals once the contract is purchased, so the money is unavailable for emergencies or opportunities that may arise during the deferral period. The principal also does not participate in market growth while you wait for payments to begin, meaning the value of a QLAC depends entirely on how long you ultimately collect income.
Inflation is another consideration. Some insurers offer a cost-of-living rider, but selecting that option typically reduces your starting monthly payment in exchange for future increases. It is important to model both scenarios before deciding whether an inflation rider is worth the trade-off.
Is a QLAC Right for You?
A QLAC tends to make the most sense for retirees who do not need immediate access to the full balance of their retirement accounts, who are concerned about outliving their savings, and who are looking for a way to manage RMDs and the associated tax consequences in their seventies and early eighties. It is generally not appropriate as a place for emergency reserves or funds you expect to need on short notice.
Because a QLAC interacts with RMD rules, tax brackets, Medicare premiums, and Social Security taxation all at once, the decision is rarely straightforward. We help clients evaluate whether a QLAC fits within their broader retirement income plan, and if so, how much to allocate and which contract features make sense for their situation.
If you would like to discuss whether a QLAC could help reduce your future RMDs and strengthen your retirement income plan, we invite you to schedule a free 30-minute call with us at https://rooneywealth.com/contact/.
Rooney Wealth Management LLC is an investment adviser registered with the state of California. This article is for educational purposes only and is not tax, legal, or investment advice. Please consult your tax or financial professional regarding your specific situation.
