Product Details of a QLAC

Published September 17, 2017
Although QLACs are similar to longevity annuities, they differ in a few key ways. We’ve clarified the four unique features of a QLAC here.
  • A QLAC isn’t subject to standard required minimum distribution (RMD) rules
  • There are limits to the purchase size of your QLAC
  • The money you use to purchase your QLAC can only come from specific accounts

The QLAC is like a pension you can buy for yourself from an insurance company using your pre-tax retirement savings, generating a guaranteed income that lasts as long as you do. Because of its special designation, income from QLACs can start later than 70 1/2, reducing the RMDs and associated taxes. It’s a great way to diversify your portfolio, and make sure that all, or most, of your basic retirement expenses will be covered for as long as you live.

They may seem like regular longevity annuities, but they differ in a few key ways. The main distinction is that it’s purchased with pre-tax funds (from an IRA or 401(k)) but isn’t subject to the standard required minimum distribution (RMD) rules.

Traditional RMDs force you to withdraw your money (and therefore pay taxes on your savings) by age 70 1/2. However, with a QLAC, you can wait as late as 85 to start withdrawing the portion of your tax deferred savings that you’ve used to purchase the QLAC. This means you can be prepared for a longer time horizon.

This comes with a few rules, which we’ll walk you through:

Features of a QLAC #1: Your annuity has to be bought as a QLAC to qualify for the tax deferral.

You have to buy an annuity as a QLAC in order to qualify for the tax deferral. Other annuities you buy, such as a longevity annuity bought with pre-tax savings, cannot be reclassified as a QLAC later.

QLACs also have a limited number of extra features, unlike some other longevity annuities. For example, it can’t have any features related to the market except an adjustment for inflation.

Features of a QLAC #2: There are limits to the amount of money you can put in a QLAC.

QLAC premiums are limited to the lesser of $125,000 or 25% of the money in your traditional IRA account, per person on the annuity contract. This means that if you’re buying a QLAC for you and your spouse, then you can have up to $250,000 worth of QLACs.

Features of a QLAC #3: The money in a QLAC can only come from certain types of accounts.

You can only contribute to a QLAC with money saved in pre-tax accounts, such as traditional IRAs (not Roth) and 401(k), 403(b), and 457(b) plans.

You cannot contribute to a QLAC with money saved in Roth IRA accounts or pension plans.

Features of a QLAC #4: There’s a longer deferral period option with QLACs.

The biggest benefit of a QLAC is that you can defer being taxed on your retirement savings until age 85. Because QLACs are exempt from required minimum distributions till 85, the longer you defer receiving income from your QLAC, the greater your benefit.

How Can I Purchase a QLAC?

At Blueprint Income, we offer QLACs from more than 15 top rated insurance companies. Click below to get real-time personalized quotes.

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From there, you’ll get access to our annuity guides and team of specialists to help you analyze your retirement finances and walk you through the application process.

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Lauren Minches

Lauren Minches

Financial Planning Professional

Lauren is an actuary by training with expertise in retirement, finance, and risk. She writes about annuities to make them easier to understand and evaluate. Her goal is to help people create retirements with more time for living and less time thinking about money.