Retirees who turn 73 and face their first required minimum distributions now have a concrete way to shrink those forced withdrawals: move up to $200,000 of an IRA or 401(k) into a qualified longevity annuity contract, or QLAC, and defer that slice of income until as late as age 80 or 85. Federal regulators first created this option in 2014, but a 2024 overhaul of the rules removed the old 25 percent account-balance cap and nearly doubled the dollar limit, making the strategy far more practical for a wider range of savers.
How the 2024 RMD overhaul expanded QLAC access
The original QLAC framework took effect when the Treasury Department published final regulations on longevity annuity contracts on July 2, 2014. Those rules let participants in defined contribution plans and traditional IRAs purchase a deferred annuity that would not count toward the account balance used to calculate annual RMDs. Payments could begin as late as age 85, giving buyers a guaranteed income stream timed to the years when savings are most likely to run thin.
For a decade, though, two limits kept contracts small: a $125,000 cap and a rule that QLAC premiums could not exceed 25 percent of the account balance. Both constraints fell when the IRS published updated final RMD regulations on July 19, 2024, implementing changes required by the SECURE and SECURE 2.0 Acts. The Internal Revenue Bulletin 2024-33 confirmed the dollar limitation rose from $125,000 to $200,000, with future inflation adjustments, and the percentage-of-balance test was eliminated entirely. The same package introduced a 90-day free-look rescission window and new rules for dividing QLACs in divorce under a qualified domestic relations order.
The Government Accountability Office classified the broader RMD rulemaking package as a major rule, a designation reserved for regulations with an annual economic effect of $100 million or more. That classification triggered formal congressional review and cost-benefit documentation requirements, underscoring how significant the RMD and QLAC changes are for retirement savers.
What a QLAC changes for required withdrawals between 73 and 80
The core mechanism is straightforward. When an IRA custodian or plan administrator calculates a participant’s RMD each year, the value held inside a QLAC is subtracted from the account balance before the distribution factor is applied. A retiree with $800,000 in an IRA who places $200,000 into a QLAC would have RMDs computed on $600,000 instead. That difference compounds over the years between age 73, when distributions generally begin under current law, and the date annuity payments start. Insurers report contract details to the IRS on Form 1098-Q so the exclusion can be tracked and verified; the IRS explains those reporting obligations in its instructions for issuers.
By lowering the balance subject to RMDs, a QLAC can reduce taxable income in a retiree’s seventies, potentially limiting bracket creep, Medicare surcharge exposure, and the taxation of Social Security benefits. The trade-off is that income is pushed into later years, when annuity payments begin and become fully taxable as ordinary income. The decision to use a QLAC is therefore less about avoiding tax altogether and more about smoothing lifetime income and tax liabilities across retirement.
Policy rationale and safeguards
The Treasury Department framed the original initiative as an attempt to address the risk that retirees might outlive their savings. In a contemporaneous statement, officials emphasized that longevity annuities inside retirement plans could help participants convert a portion of their balances into predictable lifetime income, rather than relying solely on systematic withdrawals subject to market volatility.
At the same time, regulators built in constraints to prevent abuse and protect consumers. The QLAC limit is a hard dollar cap per individual across all plans and IRAs, not a per-account ceiling. Contracts must satisfy strict requirements on when payments start, how benefits are calculated, and what death benefits are allowed if the owner dies before or after the income start date. The 2024 regulations added the 90-day free-look period so buyers can unwind a purchase shortly after issue if they decide the product does not fit their needs, and clarified how QLACs can be split in the event of divorce without derailing compliance with RMD rules.
Who might consider using the higher QLAC limit
The expanded $200,000 cap primarily benefits retirees with substantial tax-deferred balances who expect to rely on those accounts for many years. Someone with multiple six-figure IRAs or a large 401(k) rollover can now carve out a more meaningful slice of assets to insure late-life income, rather than being constrained to a relatively small annuity that barely moves the needle on RMDs.
However, QLACs are not a one-size-fits-all solution. Retirees with shorter life expectancies, limited liquid savings, or a strong desire to leave large bequests may be less suited to locking up a portion of their portfolio in an illiquid insurance contract. Because the strategy shifts income into later years, it can also increase taxable income at advanced ages, which may or may not align with an individual’s planning goals.
Practical next steps for retirees at RMD age
Anyone approaching age 73 and considering a QLAC should review their full retirement income picture, including pensions, Social Security, taxable investments, and Roth accounts. Comparing projected RMDs with and without a QLAC can clarify how much to allocate, if any, within the new $200,000 ceiling. It is also important to vet insurers carefully, understand contract features such as inflation adjustments and survivor benefits, and coordinate the timing of annuity income with other cash-flow needs.
With the 2024 rule changes, QLACs have moved from a niche planning tool to a mainstream option for managing longevity and RMD risk. Used thoughtfully, they can help retirees balance the competing goals of tax efficiency, income stability, and protection against outliving their savings.
