Want To Delay RMDs? Check Out a QLAC

Once you hit age 73, IRS rules say you must start taking required minimum distributions (RMDs) from your traditional retirement accounts — even if you don’t need the cash and would rather let it grow. These forced withdrawals can trigger unwanted taxes and potentially even bump you into a higher tax bracket.

But if you’re looking for a legal way to delay some of those RMD headaches, a qualified longevity annuity contract, or QLAC, is one way to do it. Think of a qualified longevity annuity as a way to buy time before RMDs begin with your retirement money — while earmarking guaranteed income for later in life.

How do qualified longevity annuity contracts work?

QLACs were born out of a rule change from the U.S. Treasury. In 2014, they issued regulations allowing specific types of deferred income annuities — QLACs — to be held inside qualified retirement accounts, such as IRAs and 401(k)s.

A QLAC is a deferred income annuity you buy with retirement savings and payouts from the insurer begin between age 75 and 85. It’s essentially longevity insurance, designed to provide steady income when you’re older and more likely to need it.

Once you fund a QLAC, those dollars are removed from your retirement plan balance for RMD purposes. That means you can delay taking distributions on that portion of your savings until the annuity starts paying out, no later than age 85.

QLACs come with some strict rules you should be aware of when considering one.

• Funding limits: You can allocate up to $210,000 to a QLAC in 2025, and this figure is generally increased each year for inflation.
• Payout timeline: Payments must start no later than age 85. You can choose to begin receiving income earlier, but you can’t defer past that point.
• Only income or fixed annuities: Under the law, a QLAC cannot be a variable annuity or fixed index annuity, both of which are considered more complex and riskier options for consumers.
• Irrevocability: Once you buy a QLAC, you can’t access the principal again. It’s illiquid and doesn’t have a cash surrender value.
• Death benefit rules: Most QLACs offer a “return of premium” death benefit instead, which means any unused portion of your original investment is paid out to beneficiaries if you pass away before receiving it all. However, this feature usually reduces your monthly payout. An alternative option is life-only payouts with no refund, giving you higher income while you’re alive, but no payout to heirs if you die early.

The size of your QLAC payments depends on how much you put into the contract and how many years the money has to grow before payouts begin. The longer you wait to start receiving income — up to age 85 — the larger those payments will typically be.

How a QLAC can help you reduce required minimum distributions

When you purchase a qualified longevity annuity contract with money from a traditional IRA or other eligible retirement plan, the amount you invest is excluded from RMD calculations.

You don’t have to take withdrawals from those dollars starting at age 73 because, under the revised IRS definition, the QLAC itself satisfies the RMD rules. Even though the income payments from a QLAC can be deferred as late as age 85, they are still considered compliant under RMD regulations. That’s a big win if you’re trying to delay taxable income and avoid unnecessary withdrawals.

Because the total balance of your IRA or other qualified account is reduced by the amount you put in your QLAC, RMDs on your other retirement accounts will be smaller, and your taxable income will likely be lower. That can work in your favor, potentially keeping you in a lower tax bracket during retirement.

You can buy a QLAC through a direct, tax-free transfer from your retirement account, and it’s not counted as a taxable distribution. However while the annuity’s investment growth is tax-deferred — just like the retirement account it came from — you will owe income tax eventually once payouts begin.

Because you’re not required to invest the full $210,000 QLAC cap all at once, you can get creative with how you structure your income. For example, you might buy one QLAC at age 70 with an income start date of 80, then purchase another at age 72 that begins paying out at 85.

This staggered approach can help you fine-tune your cash flow in retirement while maintaining flexibility with the rest of your portfolio. Ultimately, QLACs don’t eliminate RMDs — but they can carve out a chunk of your retirement savings and delay when Uncle Sam gets his cut.

Factors to consider when buying a QLAC

As appealing as QLACs might sound, they’re not a perfect fit for everyone.

• Loss of control: One of the biggest trade-offs is the loss of control over your money. Once you purchase a QLAC, the funds are locked up. You can’t tap that money in an emergency or reallocate it to other investments later. The annuity becomes an irrevocable contract with an insurance company, and there’s no liquidity.
• Life expectancy: Another risk is longevity itself. If you don’t live long enough to reach the annuity’s start date — or only live a few years beyond it — you may get little or nothing out of the contract.
• No additional tax break: Some critics also argue that QLACs don’t offer any new tax advantages. Retirement accounts like IRAs and 401(k)s already offer tax-deferred growth. A QLAC doesn’t change that — it only punts a portion of the tax bill further down the road.
• Other tax strategies: If your goal is to manage your future tax bills, other strategies like Roth conversions or charitable distributions might offer more flexibility without tying up funds for years or even decades. 

Finally, QLACs simply don’t make sense for everyone. If you’re in poor health, have a shorter life expectancy, or want to spend your money more freely in the early years of retirement, deferring income until 85 may not align with your goals. QLACs are built for people playing the long game. If that’s not you, your money is probably better utilized elsewhere.

Bottom line

If you’re in your 60s and want to delay RMDs, a QLAC is one way to do that. It defers taxes and provides a stream of guaranteed payments later in life — all while playing by the IRS rule book.

QLACs aren’t for everyone, but they’re one of the few tools that let you legally delay your RMDs. Just be sure you’re comfortable locking up the money — and you’re prepared for the tax bill once RMDs finally begin.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.