What’s a QLAC?

Published September 11, 2017
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.
  • Use this article to better understand QLACs, how they work and whether they could be a fit for you
  • A QLAC is a kind of deferred income annuity, meaning you receive income payments 2+ years after purchasing
  • You can use pre-tax (qualified) savings to purchase a QLAC and begin distributions as late as age 85

Let’s talk about the Qualified Longevity Annuity Contract — otherwise known as the QLAC. It’s a type of income annuity which generates your retirement ‘salary’ – and lasts for as long as you live. You put a portion of your pre-tax savings towards purchasing a QLAC, and start getting your monthly paycheck at late as 85 years old. A QLAC turns your assets into guaranteed income for life. You can think of it like a pension you buy for yourself. Let’s break it down to understand QLACs:

A QLAC is… an income annuity.

An income annuity is a contract between you and an insurance company. In exchange for a one-time premium, the insurance company promises to give you a steady, guaranteed paycheck for life, like a pension. The size of the paycheck is specified when you purchase, and depends on factors such as how much premium you paid, your age, and gender.

More specifically, a QLAC is… a longevity annuity.

longevity annuity begins annuity payments at a future date, typically 2-40 years after the premium is paid. (In contrast, immediate annuities begin payments right away.) During the deferral period, the insurance company invests your money on your behalf. The longer you delay starting income, the greater the size of the payments they’ll be able to offer you.

A QLAC is… purchased with savings from your qualified retirement account.

As a qualified annuity, the money used to make the purchase comes from your 401(k), traditional IRA, or other qualified plan. The annuity maintains the special tax-deferred treatment meaning that you don’t incur any penalties or pay any taxes until income payments begin.

And finally, a QLAC is… exempt from required minimum distribution (RMD) rules.

RMD rules force those older than 70 1/2 to withdraw a specific amount of money from their tax-deferred retirement accounts each year. Using funds from these accounts to buy a QLAC reduces the balance subject to the RMD calculation. That means lower RMDs and lower taxable income during the QLAC deferral period.

In summary…

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 your required minimum distributions 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.

How Can I Buy a QLAC with Blueprint Income?

At Blueprint Income, we offer annuities from more than 15 top rated insurance companies. Click below to get real-time personalized quotes, where you can compare options offered from different insurers on an apples-to-apples basis.

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From there, you’ll get access to our annuity guides, 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.