The Best Way to Defer RMDs (and Their Tax Bills): QLACs
Concerned about RMDs? Worried about outliving your retirement savings? A qualified longevity annuity contract defers some RMDs and guarantees lifetime income.
You are now subscribed
Your newsletter sign-up was successful
Want to add more newsletters?
Delivered daily
Kiplinger Today
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more delivered daily. Smart money moves start here.
Sent five days a week
Kiplinger A Step Ahead
Get practical help to make better financial decisions in your everyday life, from spending to savings on top deals.
Delivered daily
Kiplinger Closing Bell
Get today's biggest financial and investing headlines delivered to your inbox every day the U.S. stock market is open.
Sent twice a week
Kiplinger Adviser Intel
Financial pros across the country share best practices and fresh tactics to preserve and grow your wealth.
Delivered weekly
Kiplinger Tax Tips
Trim your federal and state tax bills with practical tax-planning and tax-cutting strategies.
Sent twice a week
Kiplinger Retirement Tips
Your twice-a-week guide to planning and enjoying a financially secure and richly rewarding retirement
Sent bimonthly.
Kiplinger Adviser Angle
Insights for advisers, wealth managers and other financial professionals.
Sent twice a week
Kiplinger Investing Weekly
Your twice-a-week roundup of promising stocks, funds, companies and industries you should consider, ones you should avoid, and why.
Sent weekly for six weeks
Kiplinger Invest for Retirement
Your step-by-step six-part series on how to invest for retirement, from devising a successful strategy to exactly which investments to choose.
The income from required minimum distributions (RMDs) is your reward for having diligently funded your retirement accounts. But the no-free-lunch principle applies: RMDs are taxable. In addition, because they reduce the value of your retirement accounts, you’ll have less to draw on in future years, especially if you have a long lifespan.
You must start taking RMDs from your IRA, 401(k) plan or other qualified retirement plan when you reach age 73. The only good way to defer some of them is to transfer a portion of your retirement plan assets to a qualified longevity annuity contract (QLAC). The money in a QLAC is excluded from plan assets on which RMDs are calculated.
A type of deferred lifetime income annuity that meets IRS requirements, a QLAC lets you keep more of your retirement plan intact and tax-deferred longer. Under the SECURE 2.0 Act, an individual can place up to $200,000 in a QLAC. You must start taking income payments from a QLAC at 85 but may begin sooner.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
To purchase a QLAC, you’ll transfer funds from your IRA, 401(k) or other eligible retirement plan to an annuity with a life insurer. This single premium funds the QLAC. Because the transfer is from one plan custodian to another, it’s tax-free.
Lifetime guaranteed income reduces financial risk
Many people run the risk of running out of money if they live to a ripe old age. A QLAC reduces that risk because its payments, just like pension-plan income, are guaranteed to continue at the same level no matter how long you live, even if it’s past 100.
QLACs have an accumulation phase where interest earnings are held and reinvested by the insurance company, and a payout phase, also called annuitization. Future income is guaranteed. You’ll know what the guaranteed payout will be before depositing your funds.
You choose when to start receiving a stream of monthly lifetime income, but it must be by age 85 at the latest. Like other retirement plan distributions, the income will be fully taxable then. But you’ll have gained a number of years of valuable deferral of income taxes.
You don’t have to invest $200,000 all at once. You could start with, say, $75,000 in one QLAC and place $125,000 in a second QLAC later on. You could stagger the income start dates, with the first QLAC paying out when you reach 80 and the second one staring at 85, for example.
The QLAC limit of $200,000 is the current lifetime limit. The amount will be adjusted for inflation in future years.
Delaying RMDs isn’t the only benefit. More important, you’ll create a larger stream of income you can’t outlive. You can buy a QLAC at any age. The earlier you buy a QLAC, the longer you get to build up principal and the bigger payout you’ll ultimately receive.
Because you’ll have a new source of future guaranteed income, you may be comfortable taking more market risk with other assets in your plans and potentially getting higher returns.
A look at your payout options
As with any deferred income annuity, you’re no longer in control of the principal with a QLAC. You’ve deposited it with an insurer in exchange for a contract for future income.
You can choose an individual or a joint lifetime payout, with the latter paying out income until the second spouse dies. The joint payee must be a spouse under IRS death-transfer rules. Most married individuals choose the joint option so that their spouse will still get lifetime payments if they predecease him or her.
With the cash-refund option, beneficiaries will get a lump-sum payout for any of the initial deposit premium not yet paid out at the death of the annuitant(s). Most insurers reduce future monthly payments if you choose this option.
Shop around for the best deal on QLACs
QLACs are offered by many life insurers. The market is competitive, and payouts and contract provisions vary considerably.
If you consider products from only one or two insurers, it’s unlikely you’ll get the best deal. An annuity agency that offers products from many insurance companies should give you expert advice and help you make apple-to-apple comparisons.
The agency earns a commission, but it’s paid by the insurance company, not the buyer. All of your deposit goes to work for you immediately.
Review the insurer’s financial strength, as judged by AM Best and other credit rating agencies, because you’ll need a company that can deliver on its promise for many years.
QLACs aren’t for everyone. If you need all of your RMDs for living expenses, you won’t be able to afford to defer some. But many retirees can benefit from this product that’s designed to give you a bigger future stream of income for your life or the life of your spouse.
Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed, and lifetime income annuities. Ken is a nationally recognized annuity expert and widely published author. A free rate comparison service with interest rates from dozens of insurers is available at www.annuityadvantage.com or by calling (800) 239-0356.
Related Content
- How Are Annuities Taxed?
- For Longevity Protection, Consider a QLAC
- How Annuities Can Help You Retire Early and Delay Social Security
- Stressing About RMDs? Two Ways to Reduce or Even Eliminate Them
- Who Should Consider an Annuity (and Who Shouldn’t)
-
Is There a Downside to Switching Your Insurance Frequently?You keep finding lower rates every time you shop for insurance. Is there any reason not to take the better deal?
-
Is Prepaid Wireless Making a Comeback — and Can It Lower Your Phone Bill?Once seen as a budget alternative, prepaid wireless is attracting new attention as networks improve and shoppers look for flexible, lower-cost options.
-
Job Growth Sizzled to Start the Year. Here's Why It's Unlikely to Impact Interest RatesThe January jobs report came in much stronger than expected and the unemployment rate ticked lower to start 2026, easing worries about a slowing labor market.
-
I'm a Financial Adviser: This Is Why a Second (Gray) Divorce Could Cost You Big-TimeDivorce isn't any easier the second time, especially if you've remarried later in life. Rushing to settle without proper advice can have serious consequences.
-
A Matter of Trustees: Is Your Spouse the Best Person to Manage the Kids' Trusts?Naming your spouse as trustee can provide invaluable familial insight and continuity, but you should carefully weigh those benefits against potential risks.
-
Passive Muni Investors: Is Your Strategy Missing the Mark?Passive investments in municipal bonds are popular, but do they come at a cost? Two recent examples show why an active approach can be more favorable.
-
Tied Up in Knots Over a Concentrated Stock Position? This Strategy Will Help You UnravelIf you've built significant wealth through stock in one company, deciding your next move may be petrifying. Use this decision-making framework to get unstuck.
-
How to Put Your IRA to Work for Change and to Help the Next Generation, Courtesy of an Investment AdviserUnhappy with the environmental and social impact of your investments? An impact fund that aligns your portfolio with your values could make all the difference.
-
A Wake-Up Call and a Healthy Dose of Terror: How to Survive Your First Days in PrisonThis young man needed to be scared straight after his mother expressed her fear that he was on a path to prison. Hearing these eight do's and don'ts worked.
-
I'm a Financial Adviser: Here's How to Help Derisk Your Portfolio in 2026Signs of a possible economic slowdown call for balanced derisking that locks in portfolio gains without sacrificing future upside. Here's a step-by-step guide.
-
The 5 Biggest Tax Mistakes New Retirees Make in the First 5 YearsMaking the wrong tax moves in the first few years of retirement can be costly for you and your heirs. These are the five biggest mistakes to avoid.
