Two fears shadow most retirements: outliving the money, and being forced to drain a nest egg on the government’s schedule rather than one’s own. A little-known product tucked inside the tax code takes aim at both at once. By moving part of an IRA into a special kind of deferred annuity, a retiree can push back the withdrawals the IRS would otherwise demand and, in exchange, lock in a guaranteed paycheck that keeps coming no matter how long life lasts.
How a QLAC changes the withdrawal math
The tool is called a qualified longevity annuity contract, or QLAC, and it works as a form of insurance against a long life. A saver hands an insurer a lump sum today in return for a promise of monthly income that begins years down the road and never runs out. It is one of the few strategies that tackles longevity risk and the required-withdrawal rules in a single move, which is why planners reach for it when a client is healthy and worried about the money lasting into their nineties.
Ordinarily, the IRS requires owners of traditional IRAs and 401(k)s to begin taking required minimum distributions, or RMDs, at age 73, according to the IRS. Those forced withdrawals are calculated each year off the account’s total balance, and they climb as the owner ages, pushing up taxable income whether the retiree needs the cash or not. For a household with a large IRA, the RMD can force money out of a tax-sheltered account and straight onto the tax return.
A QLAC carves out an exception. Money used to buy one is removed from the IRA balance that RMDs are figured on, so it no longer drives up those annual withdrawals. The dollars sitting in the QLAC are left alone until its income stream switches on, which can be deferred as late as age 85. For 2026, a saver can direct up to $210,000 of IRA or 401(k) money into a QLAC, a ceiling the IRS set in its annual retirement figures and raises periodically for inflation.
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Income that cannot be outlived
The other half of the appeal is the guarantee. Once the QLAC’s payments begin, the insurer sends a fixed monthly amount for the rest of the retiree’s life, however long that turns out to be. Because the payout is deferred for years, each dollar of premium buys a far larger monthly check than an annuity that starts immediately, since the insurer expects to pay for fewer years and the money compounds in the meantime. The contract is reported to the IRS on a form built specifically for it, Form 1098-Q.
The structure suits a particular worry. A retiree who fears living to 95 or 100 can use a QLAC to guarantee income in those final decades, which frees the rest of the portfolio to be spent more confidently during the active early years of retirement. Many contracts also allow a return-of-premium feature, so that if the owner dies before collecting the full amount paid in, the balance passes to a beneficiary rather than staying with the insurer. That option trims the monthly payout somewhat but answers the most common objection to buying one.
The relief on required withdrawals can be meaningful for a large account. Because the IRS excludes the QLAC premium from the balance used to compute RMDs, a retiree who shifts the maximum amount into a contract effectively shrinks the account that the withdrawal formula runs against, trimming the taxable income those forced withdrawals would have generated in the seventies and early eighties. The money is not escaping tax forever; it will be taxed as ordinary income once the annuity begins paying. The strategy simply moves that tax bill later in life, often into years when a retiree’s other income has dropped and the same dollars fall in a lower bracket.
The trade-offs to weigh first
A QLAC is not free of drawbacks, and they deserve a hard look before any money moves. The cash committed to the contract is largely locked up. It cannot be tapped for an emergency once the annuity is in force, and annuities in general can carry surrender charges and layers of fees that eat into returns, the Securities and Exchange Commission cautions savers. There is also a mirror image of the longevity bet: a buyer who dies early, without a return-of-premium rider, may collect little or nothing at all.
Inflation is another consideration. A fixed monthly payout that starts at 85 will buy less than the same dollar figure would today, so a QLAC guards against outliving savings better than it guards against rising prices, unless the contract includes a cost-of-living adjustment that raises the payments over time. Those inflation riders exist, but they lower the starting check, and a retiree has to decide which risk worries them more before signing.
Cost and complexity are worth scrutinizing as well. Insurers vary widely in how large a monthly check the same premium will buy, so comparing quotes from several highly rated companies matters, as does checking each insurer’s financial strength, since the guarantee is only as good as the company standing behind it. A QLAC is also close to a one-way decision in practice; the money is committed for decades, which makes it a poor fit for anyone who might need that cash for medical bills, long-term care, or an unexpected expense before the payments ever begin.
Weighed carefully, a QLAC is a specialized instrument rather than a universal fix. It shines for a saver in good health, with a family history of long life and enough other assets to stay liquid, who wants both a smaller RMD bill in the seventies and a guaranteed floor of income in advanced age. For that person, converting a slice of an IRA into a longevity annuity can quiet two of retirement’s biggest fears at the same time, at a cost measured mainly in the flexibility given up today.
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This article was researched and drafted with AI assistance and reviewed against the linked primary sources.
David M. Keller is a finance writer based in Columbus, Ohio, covering personal finance and consumer-focused economic topics. He earned his degree in journalism from Ohio University and began his career reporting on local business and economic trends for a regional media outlet. Since then, he has contributed to a variety of online publications, focusing on clear, practical coverage of topics such as cost of living, debt, and everyday financial decision-making.
