What Is a QLAC? 2026 Limits, RMD Exclusion, and Payouts

A qualifying longevity annuity contract, or QLAC, is a deferred income annuity you buy inside a traditional retirement account that delays payments until a date you choose, up to the first day of the month after you turn 85. The 2026 lifetime premium cap is $210,000 per person, and every dollar you put in comes out of your required minimum distribution (RMD) calculation until payouts begin.¹ Treasury authorized these contracts in 2014 as a way to insure against outliving your savings.²

How the Contract Works

You move a portion of your pre-tax retirement money to an insurance company. In exchange, the insurer promises a fixed monthly income starting on a date you pick. That start date can be roughly a year after purchase or as late as the first day of the month after your 85th birthday. Waiting longer produces a larger check, because the premium has more time to grow and the insurer expects fewer years of payments.

Once payments begin, they continue for life. You lock in a guaranteed floor of income regardless of markets, interest rates, or the rest of your portfolio. It functions like a personal pension funded by part of your IRA or 401(k), sized to cover the years when other savings may be thinning out.

Which Accounts You Can Use

QLACs can be funded only from certain pre-tax retirement accounts: traditional IRAs (including SEP-IRAs and SIMPLE IRAs) and employer plans such as 401(k), 403(b), and governmental 457(b) accounts.³ Roth IRAs and inherited IRAs are not eligible. The contract must be issued by an authorized insurance company and must explicitly state that it is intended to be a QLAC.⁴

Not every employer plan offers a QLAC. Your plan has to make the option available, and many don’t. If your 401(k) doesn’t, you can roll funds into a traditional IRA and buy the contract there.

The 2026 Premium Limit

For 2026, the inflation-adjusted cap is $210,000.¹ This is a lifetime cap per person across all of your retirement accounts combined. You can’t put $210,000 in from an IRA and another $210,000 from a 401(k). Spouses with their own qualifying accounts can each buy their own contract up to the cap.

The SECURE 2.0 Act rewrote the older QLAC rules. It eliminated the earlier 25% of account balance test and raised the base dollar cap to $200,000, indexed for inflation.⁴ You don’t have to invest the full amount at once; multiple premium payments over time are allowed as long as the cumulative total stays under the cap. Keep clean records, because exceeding the limit can disqualify the contract.

If You Overpay or Change Your Mind

An excess premium is fixable. The insurer can return the excess to the non-QLAC portion of your retirement account by the end of the calendar year following the year of the overpayment, and the contract stays qualified.⁵ Miss that deadline and the contract loses QLAC status retroactively, which means the full premium counts back toward your RMD balance and can trigger penalties.

Separately, federal rules give you a 90-day free-look window from purchase to rescind the contract entirely.⁴ Once that window closes, the money is locked in.

Payout Options and Start Dates

The latest permissible start date is the first day of the month after your 85th birthday.⁴ You pick the date when you buy the contract, and most insurers let payments begin as early as roughly 13 months after purchase.

The payout must fit one of a few approved structures. A life-only contract pays the highest monthly amount and stops at your death. A joint-and-survivor contract pays a smaller amount during your lifetime but continues to a surviving spouse. A life-with-cash-refund option pays your beneficiary the difference if you die before receiving payments equal to the premiums you paid.

SECURE 2.0 explicitly authorized the return-of-premium feature, and most insurers now offer it. It addresses the biggest worry about annuities, which is dying early and losing the investment, in exchange for a somewhat smaller monthly payout than life-only.

One structural limit matters: QLACs cannot be variable or indexed contracts.⁴ Payments are fixed in nominal dollars, so inflation erodes their purchasing power over time.

The RMD Exclusion

This is where a QLAC earns its keep. You generally must start taking RMDs from traditional retirement accounts at age 73.⁶ The IRS bases those distributions on your account balance at the end of the prior year. Money sitting in a QLAC is subtracted from that balance.

A concrete example: with $800,000 in a traditional IRA and $200,000 shifted into a QLAC, your RMD is calculated on $600,000 instead of $800,000. That drops your forced withdrawal, lowers your taxable income for the year, can reduce Medicare premium surcharges, and keeps more money growing tax-deferred.

The exclusion begins the moment you buy the contract and continues until the annuity payments start. Once payments begin, they count like any other retirement distribution. The practical effect is a shift of part of your tax bill from your 70s into your mid-80s and beyond.

Annual Reporting on Form 1098-Q

Insurers must file Form 1098-Q with the IRS and send you a copy each year, starting the year you buy the contract and continuing until you turn 85 or payments begin.⁵ The form tracks premiums paid and confirms QLAC status, which is what supports the RMD exclusion on your return.

How Payments Are Taxed

Because the contract is funded with pre-tax dollars, every payment is taxed as ordinary income in the year you receive it.⁷ There is no capital gains treatment and no tax-free portion. The insurer issues a Form 1099-R each year for the amount you received.

The tax treatment is the same across payout structures. Joint-and-survivor payments are taxed the same as life-only. A return-of-premium death benefit is generally taxable as ordinary income to the beneficiary, since the underlying money was never taxed on the way in. A surviving spouse receiving ongoing payments under a joint contract reports them the same way you would have.

Trade-Offs to Weigh

After the 90-day rescission window, a QLAC has no cash surrender value. You cannot withdraw, borrow against, or access those funds until payments begin, whatever happens in the meantime.⁴
The premium is locked into a fixed contract. You give up whatever those dollars might have earned in the market over 15 or 20 years.
Because payments cannot be variable or indexed, inflation over a long deferral period reduces their real value by the time they start.
Your payments depend on the insurer’s solvency. State guaranty associations provide a backstop up to limits that vary by state, so checking your state’s cap before buying is worthwhile, especially if you already hold other annuities with the same company.
Without a return-of-premium rider, dying before payments begin means you paid for income you never received. With the rider, heirs receive premiums minus any payments already made, not investment returns.

None of these are reasons to rule QLACs out. They are reasons to be deliberate about how much of your savings you commit. Putting the full $210,000 into a QLAC when it represents a large share of your total retirement assets leaves you dangerously illiquid.

Who Benefits Most

A QLAC works best if you have enough saved that you won’t miss the money for 15 to 20 years and you genuinely worry about funding your late 80s and 90s. The typical fit is a healthy retirement balance, a desire to reduce RMDs during your 70s, and a preference for a guaranteed check over the chance of higher investment returns. Couples with family longevity often find the joint-and-survivor option a good match.

It makes less sense if you expect to spend most of your savings in your 60s and 70s, if your balance is modest enough that locking up six figures would strain your liquidity, or if you’re comfortable managing market risk and would rather keep the money invested. A QLAC is longevity insurance, not a growth strategy. If your portfolio already looks capable of sustaining withdrawals into your 90s, you may be paying for protection you don’t need.

1
IRS.gov. 2026 Amounts Relating to Retirement Plans and IRAs, as Adjusted for Changes in Cost-of-Living Notice 2025-67
2
Federal Register. Longevity Annuity Contracts
3
Investor.gov. Qualified Longevity Annuity Contract (QLAC)
4
eCFR. 26 CFR 1.401(a)(9)-6 – Required Minimum Distributions for Defined Benefit Plans and Annuity Contracts
5
IRS.gov. Instructions for Form 1098-Q
6
IRS.gov. Retirement Plan and IRA Required Minimum Distributions FAQs
7
U.S. Department of Labor. Innovations and Trends in Annuities – Qualifying Longevity Annuity Contracts (QLACs)