QLAC Limit Increased Effective January 1, 2020

Published January 15, 2020
The IRS QLAC limit for how much of your IRA you can convert into a QLAC (special longevity annuity) has increased from $130,000 to $135,000.
  • The limit for how much of your 401(k) or IRA you can use to purchase a Qualified Longevity Annuity Contract (QLAC) has increased from $130,000 to $135,000.
  • A QLAC is a special kind of longevity annuity that allows you to defer required minimum distributions (RMDs) past age 72.
  • You can defer RMDs to as late as age 85 by converting a portion of your qualified account to a QLAC.
  • The QLAC limit (maximum amount you can convert) is now $135,000, effective 1/1/2020, up from $130,000 in 2018 and $125,00 when the QLAC was created in 2014.

The QLAC limit has been updated. Effective January 1, 2020 you can now convert as much as $135,000, up from $130,000, of your IRA into a QLAC. A Qualified Longevity Annuity Contract (QLAC) is an annuity that receives special tax treatment from the IRS. It’s the only way to purchase guaranteed retirement income while also deferring required minimum distributions (RMDs) within your IRA. That means with a QLAC, you don’t have to take the full RMDs starting at 72, instead pushing back a portion of them back until as late as age 85.

The IRS imposes premium limits on QLAC purchases because of their special tax treatment.

A 2014 U.S. Treasury ruling exempted certain longevity annuity (a.k.a. deferred income annuity) products from the standard required minimum distribution rules, which force those older than 72 to withdraw a specific amount of money from their tax-deferred retirement accounts each year. This ruling created the QLAC designation.

For the second time since the original ruling came out, we are seeing an increase in the QLAC limit. The original QLAC limit of $125,000 was increased to $130,000 effective January 1, 2018, and again on January 1, 2020, to $135,000. The increase in the QLAC limit was expected because the original ruling contemplated periodic increases to account for the impact of inflation.

The $135,000 QLAC limit applies to those with $540,00 or more in their IRA. If you have less than $540,000 in your IRA, you can’t use more than 25% of those assets to buy a QLAC. This is calculated based on the sum of your IRA balances as of December 31 of the previous year. If you have $540,000 or more in those assets, you can use up to $135,000 to buy a QLAC. Here’s a link to an IRS document with the QLAC limits that were updated in 2020.

Here are some FAQs about the QLAC and the recent change.

What’s the QLAC?

A QLAC is a type of deferred income annuity purchased inside of your IRA. With such products, an individual or couple will pay a premium — all at once or over time — and elect when to receive the income. The insurance company, in return, agrees to provide a predetermined, guaranteed monthly payout for life. You can think of it like a pension you buy for yourself.

What was the old QLAC limit?

It used to be the lesser of $130,000 or 25% of your IRA account balance.

Other than the QLAC limit on premium, what makes a QLAC a QLAC?

  • QLAC designation: Annuities must be specifically designated as QLACs to qualify for this special treatment. If you bought a product that wasn’t labeled a QLAC, it can’t be reclassified.
  • Fixed payouts: A QLAC cannot have any market-based features, with the exception of an inflation adjustment feature. This means that payouts must be predetermined. If you want your payouts to go up if the stock market goes up, for example, a QLAC isn’t for you.
  • Deferral limits: You can defer payments until you’re 85.

If I bought a QLAC already, what does that mean for me?

It means that you likely have three options assuming your IRA balance (including the premium paid already into the QLAC) is at least $540,000. First, you could do nothing. Second, you could add $5,000 (if original premium was $130,000) or $10,000 (if original premium was $125,000) to your existing policy. Finally, you could buy a $5,000 QLAC from a new insurer if you wanted to spread out your purchases or take advantage of better pricing.

Which insurers offer the QLAC?

About ten insurers currently offer the QLAC. You can see a full list here.

Which insurers offer QLAC purchases of as little as $5,000?

Currently, only New York Life, Guardian, and Lincoln offer purchase sizes this small.

When should I expect the limits to increase again?

It depends on the pace of inflation, but probably 2-4 years for another $5,000 increase.

Where can I read the IRS announcement about the QLAC?

Here’s the IRS document announcing the change. There’s only a brief mention of the QLAC and the exact language from that document is as follows: “The dollar limitation on premiums paid with respect to a qualifying longevity annuity contract under § 1.401(a)(9)-6, A-17(b)(2)(i) of the Income Tax Regulations is increased from $130,000 to $135,00” 

Where can I learn more about the QLAC?

Here are links to some of the other articles in our resource center:

  • What’s a QLAC? A Qualified Longevity Annuity Contract (QLAC) is a pension-like product you can purchase with qualified savings that will provide you income for as long as you live. We’ve outlined the key components of QLACs and how they work here. Read more…
  • The Financial Value of a QLAC. A QLAC is not only financially valuable, but it offers something traditional investments cannot: peace of mind. We’ve laid out how to determine your financial return from a QLAC. Read more…
  • Should You Buy a QLAC? A QLAC offers you a guaranteed income stream to give you peace of mind during retirement. We’ve created this quick checklist so you can know if a QLAC is a good fit for you. Read more…
  • The Pros and Cons of a QLAC. QLACs have many financial benefits which make retirement planning simpler. But, it’s important that you know all they have to offer to determine if it’s right for you. Read more…

Where can I get a QLAC quote?

Here’s our free tool that provides QLAC quotes in real-time.

Blueprint Income

Blueprint Income

Financial Planning Professional

We are a team of finance, insurance, and actuarial professionals working to make it easier for everyone to achieve a steady and comfortable retirement. We write about annuities (the good and the bad) and provide strategies to help Americans prepare for retirement.

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