What is a qualified longevity annuity contract (QLAC)?

A qualified longevity annuity contract (QLAC) is primarily characterized as a deferred annuity that allows individuals to secure a stream of income later in life, specifically during their retirement years. This type of financial product is designed to help individuals manage their longevity risk, which is the risk of outliving their savings.

QLACs enable retirement savers to use a portion of their qualified retirement funds, such as an IRA or 401(k), to purchase an annuity that begins paying out in the future, typically starting at an advanced age, such as 80 or 85. This deferral of income can help individuals ensure they have a stable income later in life when they may be more dependent on their retirement savings.

Additionally, QLACs have certain tax advantages, as the funds used to purchase them are not counted towards the required minimum distribution (RMD) calculations until payouts begin, allowing for effective tax planning.

The other options describe different types of annuities that do not align with the specific characteristics and purpose of a QLAC. Understanding these details can provide clarity on how QLACs function within retirement planning.