Part 3 of our exploration of Required Minimum Distributions (RMDs) from Qualified Retirement Accounts is dedicated to the RMD-reducing “product” known as the Qualified Longevity Annuity Contract, or QLAC. We use the term “product” because QLACs are insurance contracts (products) issued by large insurance companies. Generally speaking, a QLAC is a deferred annuity within an IRA that defers RMD payments on the QLAC amount until the owner reaches a pre-selected age. The year-end IRA Account value, less the QLAC value, determines the following year’s RMD amount.

The maximum QLAC-based deferral age is 85.

Some IRA owners facing their RMD year are not looking forward to taking the entire RMD (usually for tax reasons). Not needing current income, they prefer to defer the RMD income for a period of time. Some may be planning to work for a while, and others may never need the RMD, due to having sufficient income from other sources. The QLAC is flexible in deferring its portion of the total RMD until the contract expires (date chosen by purchaser, up to age 85).

For tax year 2026, the maximum QLAC contract value is $210,000 per individual IRA owner. For the owner of a $1 Million IRA, purchasing a maximum QLAC would decrease next year’s RMD by over 20%. This RMD reduction, with corresponding tax savings, carries on until the expiration of the QLAC, which was chosen by the account owner when the Contract was purchased. This could be one year, or many, up to a maximum age of 85.

As with all things IRA, IRS, and insurance products, QLACs are complex. Understand the concept and the product before you buy. Here are a few thoughts, not intended to be a comprehensive list:

• QLACs do not change in value, as they have no. rate of return
• Their value lies solely in the delay of taxable income from the IRA’s RMD during the selected life of the QLAC.
• QLACs are required to pay RMDs directly to the owner, beginning after the selected life of the QLAC, based on current age.
• Upon expiration of the QLAC Contract, any unpaid value in the QLAC is paid out to the beneficiary (insurance company does not keep your money, as many people believe).

Assets preserved through deferral of current taxation using the QLAC are as valuable as the tax deferral feature of the IRA during working and contributing years. The rate of return on the QLAC should be considered to be the owner’s marginal tax rate for every year of ownership.