Insurance Against Living Longer Than Your Money
Almost every retirement risk is a version of one question: what happens if you live longer than the plan assumed. A qualifying longevity annuity contract answers it directly. You hand over part of an IRA now in exchange for guaranteed income beginning far in the future — as late as 85 — and while you wait, that money is removed from the balance your required distributions are calculated on. It is the only sanctioned way to push IRA income past the required beginning date.
- The answer:: Premiums paid for a qualifying contract come out of the year-end balance that drives your RMD, so the required amount falls for as long as payments have not started.
- The deferral has a deadline:: Payments must begin no later than the first day of the month after you turn 85. You are choosing when income starts within that window, not avoiding it.
- It is illiquid on purpose:: There is generally no cash value to draw on. That is the mechanism, not a defect — the insurer can promise more precisely because the money cannot be withdrawn.
- What you are buying:: Protection against outliving the plan, priced by an insurer who pools that risk. The return is poor if you die early and excellent if you live to 95, which is what insurance looks like.
Where the AI summary above gets this wrong
"A QLAC is a good way to reduce your required minimum distributions and lower your taxes in retirement."
That's surface-true. Here's what it misses:
- Deferral is not avoidance — The tax does not go away. It moves to the years when the annuity pays, and those payments are fully taxable ordinary income. Whether that helps depends entirely on whether your bracket in your late eighties is lower than it is now — for many households it is not.
- The RMD reduction is the smaller half of the point — Framing a QLAC as a tax tool understates it. The substantive purpose is transferring longevity risk to an insurer, which no ordinary investment does. If the tax deferral is the only reason to buy one, it is probably the wrong product.
- The money stops being yours to reach — A QLAC has essentially no liquidity before payments begin. Committing a meaningful part of an IRA to a contract you cannot touch for fifteen years is a real cost, and it is invisible in a comparison that only counts the reduced distribution.
01 What the contract does to the calculation
A required minimum distribution is computed by dividing your prior year-end account balance by a life expectancy divisor. Every dollar in the account raises the required amount, whether or not you want the income.
A qualifying longevity annuity contract is the exception. Premiums paid for one are excluded from that balance, so the required distribution is computed on what remains. Move $200,000 of a $900,000 IRA into a QLAC and the calculation runs on $700,000 instead.
The exclusion lasts until the contract begins paying, which must be no later than the first day of the month after your 85th birthday. From then the payments themselves are taxable income, and they are typically larger than the distributions they replaced — the deferral is a shift in timing, deliberately made and not disguised.
Shows: the reduction in this year's required distribution from excluding a QLAC premium from the balance, and the tax that defers. Ignores: the contribution limit on QLAC premiums, the larger taxable payments that begin later, and that the money is illiquid until the contract starts.
Source: Publication 590-B, Distributions from Individual Retirement Arrangements
02 What it costs, in liquidity and in outcomes
The premium is capped, both in dollars and as a share of your retirement balances, so a QLAC is a component of a plan rather than a plan. Within that cap the decision is about what you give up.
Liquidity is the main sacrifice. These contracts generally carry no cash value before payments start, cannot be surrendered for a lump sum, and are not a source of emergency money. That is precisely why the guaranteed income is as high as it is: the insurer is not holding a reserve against early withdrawal.
The outcome distribution is asymmetric by design. Die at 80 having bought income starting at 85 and — absent a return-of-premium feature, which reduces the payments — the money is gone. Live to 95 and it pays for a decade past the point most plans quietly assumed you would not reach. Judging a QLAC by expected return misses what it is for, which is the same reasoning behind longevity risk generally.
Source: Retirement plan and IRA required minimum distributions FAQs
03 Where it fits, and where it does not
The households a QLAC suits best have a substantial traditional IRA, required distributions larger than they need to spend, and a genuine reason to expect a long life. For them it does two jobs at once: it lowers taxable income now and it removes the risk that the portfolio has to last longer than planned.
It suits poorly where the balance is modest, where liquidity is already tight, or where health suggests a shorter horizon. It also does little for someone whose wealth is mostly in Roth accounts, since there is no lifetime required distribution to reduce.
One structural point is worth stating plainly: the payments are ordinary income when they arrive, and they arrive in years when you may be filing as a single survivor on narrower brackets. A QLAC defers tax into a period that can be less favourable than the one it left, and that is a reason to size it deliberately rather than a reason to avoid it.
I am wary of most annuity products and unusually comfortable with this one, because it is the rare case where the complexity is doing something you cannot do yourself. You cannot diversify away the risk of your own long life — there is one of you, and no portfolio solves a sample size of one. An insurer pooling thousands of people can. What I would not do is buy one for the tax deferral. If the reduced distribution is the attraction, the honest comparison is against a Roth conversion, which shrinks the same balance permanently and leaves the money reachable.
FAQ
What is a QLAC?
A qualifying longevity annuity contract: a deferred annuity bought inside an IRA or workplace plan whose premium is excluded from the balance used to compute required minimum distributions. Payments must begin no later than the first day of the month after you turn 85.
Does a QLAC reduce my required minimum distributions?
Yes, while payments have not started. The premium comes out of the year-end balance the required amount is computed from, so the required distribution falls. Once the contract begins paying, those payments are fully taxable ordinary income.
Can I get my money back out of a QLAC?
Generally no. These contracts have essentially no cash value before payments begin and cannot be surrendered for a lump sum. That illiquidity is why the guaranteed income is as high as it is, and it is the main cost of the arrangement.
Sources
Regulator references
- Publication 590-B, Distributions from Individual Retirement Arrangements · Internal Revenue Service · 2025How a qualifying longevity annuity contract is excluded from the RMD calculation.Last verified: 2026-09-07
- Retirement plan and IRA required minimum distributions FAQs · Internal Revenue Service · 2025How the required amount is computed from the year-end account balance.Last verified: 2026-09-07
- Topic no. 410, Pensions and annuities · Internal Revenue Service · 2025Taxation of the payments once the contract begins paying.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.