Qualified Longevity Annuity Contract (QLAC)
What Is a Qualified Longevity Annuity Contract (QLAC)?
A Qualified Longevity Annuity Contract (QLAC) is a type of deferred income annuity purchased within certain retirement accounts, such as traditional IRAs or employer-sponsored plans. A QLAC allows individuals to defer a portion of retirement savings into an annuity that begins paying income later in life, often at age 80 or later.
QLACs are designed to provide income protection against the risk of outliving retirement savings.
Why It Matters
Longevity risk is a major concern for retirees. A QLAC helps address this risk by providing guaranteed income later in life, when personal savings may be lower and healthcare costs may increase.
QLACs may also reduce required minimum distributions (RMDs) on the portion of assets allocated to the contract until payments begin.
How QLACs Work
An individual allocates a portion of retirement savings to purchase a QLAC.
Key features often include:
- deferred income payments starting at a future age
- guaranteed lifetime payments once income begins
- reduced required minimum distribution obligations on QLAC funds until payouts begin
QLAC rules and contribution limits are regulated by federal retirement plan guidelines.
QLAC vs Deferred Annuity
- A QLAC is specifically designed for use within qualified retirement accounts.
- A deferred annuity may be purchased with either qualified or nonqualified funds.
FAQs About QLACs
When do QLAC payments begin?
Typically at a later age such as 80 or 85.
Why would someone use a QLAC?
To create guaranteed income later in retirement.
Are QLACs available in all retirement accounts?
They are permitted in certain qualified retirement plans.
Related Terms
- Longevity Risk
- Deferred Annuity
- Required Minimum Distributions (RMDs)
- Lifetime Income
- Annuity Payout Options
