2025 Market & Policy Trends (Part 3)

QLACs in 2025:

How SECURE Act 2.0 Supercharged This Retirement Tool

The SECURE Act 2.0, signed into law in late 2022, made several significant changes to the retirement planning landscape. Among the most impactful for annuity-focused advisors and their clients is the enhanced role of Qualified Longevity Annuity Contracts (QLACs). In 2025, these once-overlooked tools are gaining new attention—and new life.

What Are QLACs?

QLACs are deferred income annuities purchased with qualified retirement funds (e.g., from IRAs or 401(k)s). They allow retirees to postpone required minimum distributions (RMDs) and instead receive guaranteed lifetime income starting as late as age 85.

Before the SECURE Act 2.0, QLAC purchases were limited to the lesser of 25% of retirement assets or $145,000. As of 2025, the limit has been increased to a flat $200,000 (adjusted annually), and the 25% rule has been eliminated. This opens the door for larger income deferrals and longer planning windows.

Why the Change Matters

The updated QLAC limits give high-balance retirees the ability to:

• Reduce RMD-related tax burdens in their 70s.
• Secure guaranteed income for their 80s and beyond.
• Hedge against longevity risk without overcommitting assets early in retirement.

In a world where people are living into their 90s and beyond, QLACs provide targeted income support for the "late retirement" phase—a period that traditional financial plans often underfund.

Strategic Uses for QLACs in 2025

1. Tax Deferral Strategy Clients with large IRAs can use QLACs to exclude up to $200,000 from their RMD calculations, potentially lowering their taxable income and Medicare premiums in their 70s.

2. Bridge to Long-Term Care Planning For clients without traditional LTC coverage, QLACs can serve as a predictable income source beginning at age 85, when healthcare costs often spike.

3. Estate Planning Efficiency Because QLACs are not market-based, they don't pass on value at death—but they do provide income that can reduce pressure on inherited assets or Roth conversions.

Example: Samantha, 67, has $1.5 million in her IRA and wants to manage her tax burden while ensuring she won't outlive her savings. In 2025, she uses $200,000 to purchase a QLAC that begins paying $25,000/year at age 85. This move:

• Reduces her RMD calculation base to $1.3M
• Delays income taxes on the $200K for 18 years
• Guarantees late-life income without drawing down other assets

Limitations and Considerations

• QLACs are irrevocable. Once purchased, funds are committed.
• No market upside or inflation adjustment unless built in (often at a cost).
• Inflexible if retirement plans change or early withdrawals become necessary.

What Advisors Should Do

• Revisit income planning assumptions in light of the SECURE Act 2.0.
• Identify clients in their late 60s to early 70s with large IRAs who may benefit.
• Coordinate with tax professionals to evaluate QLACs as part of RMD mitigation strategies.

The updated QLAC rules give advisors new flexibility to address the later stages of retirement. For clients concerned about outliving their savings—or simply managing future income tax—QLACs deserve a fresh look in 2025.

Next up: How annuities can anchor portfolios in volatile markets.