Qualified Longevity Annuity Contracts (QLACs): Updated Pros & Cons for 2025

If you're exploring Qualified Longevity Annuity Contracts—better known as QLACs—you’re asking the right questions. Every annuity product comes with upsides and limitations, and knowing both is the smart way to decide if a QLAC fits your retirement plan. Let’s unpack what QLACs are, what's new for 2025, the benefits, drawbacks, and how to structure one effectively.

What Is a QLAC and Why It Matters

A QLAC is a special type of deferred annuity designed for “income later” planning. It’s funded via a traditional IRA, 401(k), or 403(b) (not Roth accounts) and gives you a stable income stream starting at a specified future age—anytime up to age 85, the deadline mandated by the IRS. Built in 2014 through collaboration between the Treasury and the IRS, QLACs allow you to intentionally defer part of your retirement income without it counting toward your RMDs, helping to manage your income floor—your core guaranteed income over time.

Updated 2025 Rules: What’s New

Thanks to the SECURE Act 2.0 and the IRS updates for 2025, important limits have changed:

Contribution Cap: You can now place up to $210,000 into QLACs (inflation-adjusted annually). The prior 25% IRA value rule has been completely repealed.
Deferral Age: Income must begin by age 85, though you can choose any start date before then.
RMD Exclusion: Funds allocated to a QLAC are excluded from RMD calculations, which can effectively reduce your annual taxable income.
Plan Flexibility: QLAC funds must originate from pre-tax retirement plans and are treated as annuity contracts—nothing else qualifies.

Benefits of a QLAC

Guaranteed Lifetime Income – A personal pension-style income stream that keeps paying as long as you or your spouse lives.
Tax-Advice RMD Strategy – Excluding QLAC funds from RMDs lowers taxable IRA balances for years.
Simple, Straightforward – Setup and structure are easy to understand.
Potential Estate Planning Edge – Options exist to pass remaining funds to heirs (e.g., cash refund).
Customizable Income Start – Set incomes to begin as early as 70–71 or defer to 85.
Laddering Capability – Spread funds across staggered start dates for flexible income planning.

Limitations of a QLAC

No Market Growth – During the deferral, your principal doesn’t earn interest; payment enhancements only come from longer deferral.
Low Liquidity – Once purchased, QLAC funds are locked in, with no lump-sum withdrawals allowed.
Contribution Limit Still Exists – Even with recent increases, $210k may not be enough for high-net-worth IRAs.
Missed upside if interest rates rise – Payment rates are set when purchased and don’t adjust with market changes.

When QLACs Might Make Sense

QLACs are ideal when you want guaranteed income later in retirement, especially for legacy planning or providing for a spouse. They’re less useful if you need liquidity, flexibility, or your primary concern is investment growth.

How to Shop for a QLAC

We quote all carriers because QLAC payouts change, just like plane tickets or milk, rates shift frequently. The “best” company is the one offering the highest contractual income for your scenario at that moment. No favorites, just numbers.

Ready to Take the Next Step?

Want to explore a QLAC for your retirement? You can download my QLAC Owner’s Manual for free—no strings, just solid info. If you're ready to dive deeper, we can provide you with options and empower you to make the best decision.