When a Qualified Longevity Annuity Contract (QLAC) Makes Sense | Lord Abbett
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Retirement Perspectives

A QLAC allows funds from a retirement plan to be converted into an annuity.

Read time: 4 minutes

According to a study, an astounding 61% of Americans fear outliving their retirement assets more than they fear death. 1 The fear of outliving savings is real and prompted by a confluence of factors: Increasing life expectancies, the steady decline of defined benefit plans that once provided a reliable source of income, concerns over Social Security’s long-term viability, a low interest rate environment and stock market turbulence. 


Key Takeaways

• A QLAC serves to defer taxes until a later age (maximum of 85) while addressing longevity concerns.

• It offers flexibility of when to begin your income, moving beyond the typical RMD age of 72.

• Regulations apply. Talk to your financial professional


The essential question of “Will I have enough income to last throughout retirement?” has led some investors to consider a retirement vehicle known as a qualifying longevity annuity contract (QLAC). A QLAC is a special type of annuity designed to help with longevity concerns.

Considering a QLAC Introduced by the IRS in 2014, a QLAC enables retirees to plan for future income needs using their qualified retirement accounts (i.e., IRA, 401(k) etc.). It serves as a deferred annuity that an individual can purchase, up to a stated amount, using IRA or qualified employer retirement plan funds. You pay a single premium and then choose when to start receiving a stream of lifetime income, by age 85 at the latest.

A QLAC can be purchased with the lesser of 25% of your retirement funds or $135,000 (dollar limit is subject to cost-of-living adjustments) while the annuity payments can begin as late as age 85. Notably, the 25% limit is applied to each employer plan separately, but in aggregate to IRAs.

Why would an investor consider such a vehicle?  The bottom line is putting off required minimum distributions (RMDs) lets you keep more of your retirement savings account intact and tax deferred.  As investors reach their 70s, retirement account holders are required to start taking income whether it’s needed or not in the form of RMDs, which are based on their life expectancy.  The older an individual the higher percentage of a retirement account must be distributed annually, or they face a hefty 50% penalty tax.

RMD rules were created in part to prevent retirement investors from deferring income taxes forever. Unfortunately, retirees have little control over minimum withdrawals that are required to be distributed annually.  Enter the QLAC. Any funds you invest in a QLAC are not included in your balance when it comes to calculating your RMDs until the retiree reaches his or her annuity start date, which is the month after the individual attains age 85. Thus, this approach reduces your RMDs.

A QLAC allows you to choose either 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. A QLAC can provide a return-of-premium death benefit that would return to the account any premiums paid—less any income payments—when the annuity purchaser dies.


A QLAC allows for a transfer of traditional IRA funds to be used to purchase a deferred annuity. The funds transferred to purchase the QLAC aren’t subject to RMDs until a later age (maximum of 85).


Benefits of a QLAC

  • Defers taxes. Delaying up to 25% of your RMDs is a powerful way to set aside a portion of your retirement assets today, reduce RMDs beginning at age 72 and postpone receiving income from these funds in the future.  Bear in mind, however, the other 75% of retirement accounts (excluding Roth IRAs, which are not subject to lifetime RMDs) remain subject to RMDs. For example, if the value of your IRAs (traditional, SEP, and or SIMPLE) is $500,000 and you purchase a QLAC for $135,000, your RMD will be calculated on an account value of $365,000.
  • Greater flexibility to begin income.  A QLAC may provide a retiree with greater flexibility by delaying income until later in retirement. The biggest advantage is that you’ll create a larger stream of income you can’t outlive. RMDs can be postponed beyond age 72 by purchasing a QLAC, while still locking in guaranteed income in the future. This strategy would reduce RMDs for an investor, while likely meaning less in taxes.

Not for Everyone

  • QLACs, however, are not for everyone. Ask yourself the following questions: How is my overall health?  Can I live comfortably by deferring income? Do I want retirement income for life? Could I outlive my retirement nest egg?
  • Prior to purchasing a QLAC, make sure you’re familiar with all features. One of the most important is that as with any deferred income annuity, you’re no longer in control of the principal. Instead, your funds have been given to the insurer in exchange for future income.

PRACTICE TIP: QLAC limits will apply separately to each spouse when each has their own retirement account.

What Else Do I Need to Know?

  • Regulations also allow a participant in a 401(k), 403(b), or governmental 457(b) to use a portion of the account to purchase a QLAC. Company plans (e.g., 401k) are not required to offer the option to purchase a QLAC. However, if your employer’s retirement plan allows in-service rollovers or if you have already separated from service, you can move money from your 401(k) or other retirement plan to an IRA and then set up the QLAC. 
  • The QLAC must be purchased from an insurance company, and the contract must state that it is intended to be a QLAC. The contract must provide that annuity payouts will begin no later than the first day of the month following the month in which the taxpayer reaches age 85. The contract cannot contain any features that would provide for commuted benefits (lump-sum distribution) or cash surrender rights.
  • Death benefits must meet specific requirements, depending on various factors, such as whether the beneficiary is a spouse, when the participant dies, etc.
  • The QLAC cannot be a variable annuity contract or an equity-indexed contract, but it can provide for cost-of-living adjustments. It cannot offer the insured the option to cash out the benefit or accelerate payments.
  • An annuity purchased within a Roth IRA cannot qualify as a QLAC.
  • Any excess amount used to purchase a QLAC will disqualify the QLAC unless it is returned to the IRA on a timely basis.


1.  Allianz Reclaiming the Future Study, 2010

To comply with Treasury Department regulations, we inform you that, unless otherwise expressly indicated, any tax information contained herein is not intended or written to be used and cannot be used, for the purpose of (i) avoiding penalties that may be imposed under the Internal Revenue Code or any other applicable tax law, or (ii) promoting, marketing, recommending to another party any transaction, arrangement, or other matter.

These materials do not purport to provide any legal, tax, or accounting advice.

The information is being provided for general educational purposes only and is not intended to provide legal or tax advice. You should consult your own legal or tax advisor for guidance on regulatory compliance matters. Any examples provided are for informational purposes only and are not intended to be reflective of actual results and are not indicative of any particular client situation.

The information provided is not directed at any investor or category of investors and is provided solely as general information about Lord Abbett’s products and services and to otherwise provide general investment education. None of the information provided should be regarded as a suggestion to engage in or refrain from any investment-related course of action as neither Lord Abbett nor its affiliates are undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity. If you are an individual retirement investor, contact your financial advisor or other fiduciary about whether any given investment idea, strategy, product or service may be appropriate for your circumstances.



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