a qualified longevity annuity contract qlac is a deferred annuity funded with an investment from a qualified retirement plan or an individual retirement account ira they are available for purchase through many insurance companies 
a qlac provides guaranteed monthly payments that begin after the specified annuity starting date as long as the qlac complies with internal revenue service irs requirements it is exempt from required minimum distribution rmd rules until the owner reaches age 85 1understanding a qualified longevity annuity contract qlac a qlac is an investment vehicle that allows funds in a qualified retirement plan such as a 401 k a 403 b or an ira to be converted into an annuity an annuity is a contract purchased from an insurance company in which the buyer pays a lump sum or a series of premiums the insurance company pays the annuitant beginning on a predetermined start date how many years the owner receives payments depends on the type of annuity purchased the secure 2 0 act of 2022 allows individuals to move 200 000 to a qualified longevity annuity contract it adjusts the 200 000 limit annually for inflation and the legislation recently removed the rule capping qlac premiums at 25 of the participant s total plan assets 2a qlac provides a lifetime income once the preset annuity start date is reached the longer an individual lives the longer a qlac pays out using ira funds to purchase a qlac helps avoid violating the irs rmd rules mandating a minimum amount to be annually withdrawn from an individual s retirement account balances beginning at age 73 and increasing to age 75 in 2033 3a qlac allows distributions to be delayed until a predetermined payout date but no later than the person s 85th birthday a qlac also allows a spouse or other party to be a joint annuitant where both named individuals are covered with the same conditions regardless of how long they live the maximum age to which qlac funds may be deferredqualified longevity annuity contracts and taxesqlacs have the added benefit of reducing an individual s rmds which iras and qualified retirement plans require limiting rmds can help keep a retiree in a lower tax bracket with a tax benefit and reduced medicare premium once qlac income begins an individual s tax liability will increase the annual distribution is based on the account s value at the end of the preceding year the promised benefit of qlacs can only be achieved if rules set by the irs are followed 1qualified longevity annuity contract optionsone option to benefit from qlacs is by laddering them and purchasing one qlac each year for several years such a strategy is similar to dollar cost averaging which considers that annuity costs can fluctuate along with interest rates in other words a qlac could be purchased each year lowering the average cost of the contracts all laddered annuity contracts can be structured to begin paying out in the same year each contract could also have its payouts staggered to pay out in different years based on the owner s age and when the income is needed the first qlac purchased could begin paying out at age 78 the next at age 79 and continue however rmds are required at age 85 qlac buyers can add a cost of living adjustment to their contract which indexes the annuity against inflation deciding on this depends on life expectancy as the cost of living adjustment will reduce the qlac s initial payout the greatest risk of buying a qlac is the financial strength of the issuing company example of a qlacshahana is 67 and due to retire in three years she would like to save on tax liabilities from her rmds based on her current retirement account balances shahana s first year rmd is estimated at 84 000 when she turns 73 she has investments in other assets such as stocks bonds and real estate which should provide her with an income stream during retirement she also plans to consult part time to stay current in her field shahana invests 100 000 in a single premium qlac account from her ira savings to withdraw when she turns 85 this will delay her rmd withdrawal date for the 100 000 used to purchase the qlac when shahana turns 85 she ll have guaranteed income from the qlac for the rest of her life the money set aside in the qlac is excluded from her ira assets when determining her annual rmds until she turns 85 resulting in lower current income taxes however she will eventually pay income taxes on the distribution amounts from the qlac and likely a lower tax bracket at age 85 