What Is a QLAC IRA?

Hi, out there in internet land, you're looking at QLACs. That only means a couple of things. Number one, you read a really bad article about it unless I wrote it. Number two, your investment advisor, master of the universe, mentioned Qualified Longevity Annuity Contracts (QLACs), and you said, "I might need to learn a little bit more about that before I make a decision." That's good, because you're with me, Stan The Annuity Man. And at the end of this blog, I will tell you how you can get this book, QLAC Owner's Manual, for free if you hang in there with me.

What We'll Cover

Now, let’s talk about what we’re going to go over. It’s a lot, but I’m going to be very succinct and informational, and at the end, you'll know what a QLAC does and if you actually need a QLAC or want to get quotes. So, what we’re going to talk about is how it works, the rules that are in place to fund a QLAC, benefits, limitations of the product, how to structure it (it's a contract), how to get a quote, and a couple of things it solves for. And then, at the end, the book. So, hang in there with me. We’re going to learn a lot.

The Basics of QLACs

Okay, so let’s talk about the basics, the down and dirty of QLACs. From here on, I will say QLAC instead of Qualified Longevity Annuity Contract for the entire blog to drive you crazy. So, what do QLACs do? It’s a future pension product. It’s a transfer of risk. You're transferring the risk for the annuity company to pay you or pay you and your spouse for the rest of your lives, regardless of how long you live, which I think is kind of cool. Now, there are some rules in place that we need to discuss, but let’s talk about the history of the product first. It was designed and implemented in 2014 by the IRS and the Treasury, which combined efforts to create this product for the public so they could put it in place in their traditional IRAs as a future pension guarantee. They’re sending a shot across the bow that they do not want you to use Social Security as your sole income source.

So, hey, tap on the shoulder, America, we'd like you to use all that money in your traditional IRA, or part of it, to fund that future pension source. That’s where it came from — 2014, our friends at the IRS and the Treasury Department.

Rules for Funding a QLAC

As of 2025, the maximum amount you can use to fund a Qualified Longevity Annuity Contract (QLAC) is $210,000, with no percentage-of-savings limit. This means if you have a traditional IRA with a balance of $500,000, you can allocate up to $210,000 to purchase a QLAC. Some 401(k) plans also offer QLACs; it's advisable to check with your plan administrator for specific rules.

QLACs offer flexibility in structuring income options. You can choose a single life or joint life arrangement. In a joint life setup, the income continues for the lifetimes of both you and your spouse. For example, if you're 65 and purchase a QLAC, you can select an income start date as early as 71 or 75 or as late as 85. Delaying the start date typically results in higher periodic payments.

How Life Expectancy Affects QLAC Payments

QLAC payments are primarily determined by life expectancy at the time of purchase. More extended deferral periods and later income start dates generally lead to higher monthly payments. For instance, purchasing a QLAC at age 65 with income starting at age 80 will provide a different payment amount than starting at age 85. It's essential to consider your family's health history and personal longevity when deciding on the income start date.

Benefits and Limitations of QLACs

Benefits:

• Guaranteed Lifetime Income: QLACs provide a predictable income stream you cannot outlive, which is particularly valuable if you're concerned about outliving your savings.
• Tax Deferral: Investing in a QLAC allows you to defer required minimum distributions (RMDs) from your retirement accounts until the income start date, potentially reducing your taxable income in the years leading up to that date.
• Inflation Protection: Some QLACs offer options to adjust inflation payments, helping preserve purchasing power over time.

Limitations:

• Irrevocability: The decision is generally irreversible once you invest in a QLAC. The funds used to purchase the annuity are committed and cannot be accessed as a lump sum.
• No Early Access: QLACs are designed to provide income starting at a future date, typically no earlier than age 71. Accessing funds before the income start date is usually not permitted.
• Potential Inflation Erosion: Without inflation protection, the fixed payments from a QLAC may lose purchasing power over time, especially if inflation rates are high.

Incorporating a QLAC into your retirement strategy can be a prudent way to ensure income security in later years. However, assessing your financial situation, health considerations, and retirement goals is crucial before making such a commitment. Consulting with a financial advisor can provide personalized guidance tailored to your needs.

How to Quote a QLAC

Quoting a QLAC is like buying a plane ticket. When you go buy a plane ticket, I guess Orbitz is one that you go or Priceline; you punch in where you’re going and the dates you’re going, and unless you’re trying to get a rewards card or something, you don’t really care who pops up, you just want to see the best deal. It's the same premise for when you’re quoting a QLAC. You’re going to go to The Annuity Man, you’re going to punch in your information, and I have no clue who’s going to finish first because the quotes are like a gallon of milk — they change every 7 to 10 days, and you’re going to see the quote. So that’s how the quoting process happens.

Story About Joint Life vs. Joint Life with Cash Refund

Good story. The other day, somebody called me and said, “Stan, we really like the QLAC. We read all your stuff. We watched the video five times because we’re bored.” No, I’m kidding. “We watched the video. Explain to us again joint life only versus joint life with cash refund.” So, here’s what I said: “Joint life is only going to pay you and your spouse for the rest of your life.” His name was Jim and her name was Martha. “Jim, it will pay you for the rest of your life. When you die, the income will continue uninterrupted and remain unchanged for Martha’s life. Now, when Martha dies under joint life only, money goes poof. Money goes poof, and the evil annuity company keeps whatever’s left over.”

Now, they didn’t like that. Jim and Martha were like, “No, we don’t like that. Our kids have been good to us. They take care of us. They’re really dialed into where we’re at in our life, and we want to make sure that if there’s any money left over, it goes to them.” They had two kids. So, I said, “Okay, here’s what we do then: We set up joint life with cash refund. Joint life with cash refund means that Jim, it’s still going to pay you for the rest of your life. Martha, it’s still going to pay you for the rest of your life, but when the second spouse dies, whoever that second spouse is, whatever’s left in the account will go to the beneficiaries in full 50/50 split right down the middle.” They liked that. They liked the fact that the evil annuity company wasn’t going to keep a penny, but they also liked the transfer of risk guarantee of the lifetime income stream. So that’s a good story and maybe that fits your story on how to structure a QLAC.

Conclusion and Getting Your Free QLAC Owner's Manual

Okay, it’s been a firehose of information. I’ve shot a lot of stuff at you about QLACs, but I’m sure I left something out, right? I’m trying to do the best I can with all this. I would really encourage you to get my free QLAC Owner's Manual. You can download it for free, with no obligation and no cost. And we’re doing that because I always want my clients to have all of the information, and I worked hard on this. It’s a 55-page read, but it covers everything you need to know to make a good decision.

There’s never an urgency to buy an annuity of any type. The urgency is that you fully understand what you’re buying, period. Our job is to get you the best quotes and information and then leave you alone, act like a professional, and treat you like a professional so you can decide on your terms and timeframe.

Thanks for joining me. See you next time.