SPIA vs. deferred annuity vs. QLAC: income now, or income later
If you want to convert a chunk of savings into income you can’t outlive, three close cousins do the job — and choosing between them comes down to when you want the income to start. A SPIA pays you now. A deferred income annuity pays you later, and pays more for the wait. A QLAC is a deferred annuity bought inside your IRA that adds a genuine tax superpower: it shrinks your required minimum distributions while it waits. Get the match right and you build a rock-solid income floor or a cheap longevity hedge; get it wrong and you lock up money you needed. Here’s how the three compare, and a calculator for the QLAC’s RMD trick.
1. Three ways to buy income
All three of these products do the same fundamental thing: you hand an insurer a lump sum, and in return you get guaranteed income for life — income you cannot outlive. What separates them is timing: when the checks start, and (for the QLAC) what tax magic happens while you wait.
Think of it as a spectrum. At one end, income starts immediately. At the other, income starts decades from now — and the longer the wait, the more each dollar of premium eventually pays. The QLAC sits at the far end with an extra feature bolted on. Match the product to when you need the money, and the rest follows.
2. SPIA: income now
A Single Premium Immediate Annuity (SPIA) is the simplest: you pay a lump sum and income begins within about one to twelve months, continuing for life. There’s no accumulation phase, no cash value, no riders — just a paycheck.
It fits retirees who need guaranteed income now to replace a salary, who have limited pension or Social Security, or who are single with few heirs to prioritize. The defining limitation is that once you annuitize, the principal is gone — you’ve permanently traded the lump sum for the income stream, with no liquidity to draw on in an emergency. For feds, a SPIA mainly makes sense to top up an income floor that a pension and Social Security don’t fully cover.
3. DIA: income later
A Deferred Income Annuity (DIA) — often called a longevity annuity — is bought now but doesn’t start paying until a future date, sometimes years or decades out. Because the insurer holds your money longer, the eventual payments are dramatically larger than an immediate annuity bought with the same premium.
A DIA isn’t for income today — it’s cheap insurance against living a very long time. Use a SPIA if you need income now; use a DIA if you want to guarantee income for your 80s and 90s at low cost. The DIA wins decisively if you live long; your portfolio wins if you don’t. That’s why it’s called longevity insurance, not an investment.
4. QLAC: the tax superpower
A QLAC (Qualified Longevity Annuity Contract) is simply a DIA bought with qualified retirement money — a traditional IRA or 401(k) — that meets special IRS rules. It guarantees lifetime income starting as late as age 85, and it carries a benefit no ordinary DIA has: the premium you put into it is excluded from your required minimum distribution calculation.
That’s the superpower. Under SECURE 2.0, you can move up to a dollar cap — $210,000 in 2025, indexed for inflation (confirm the current-year figure) — out of your IRA into a QLAC, and that money no longer drives your RMDs until the income begins. You get longevity insurance and a smaller forced taxable withdrawal every year in between. The calculator next shows exactly how much.
5. The QLAC RMD effect
Enter your traditional IRA balance, how much you’d move into a QLAC, and your age. The calculator shows your RMD with and without the QLAC carve-out — the yearly taxable income it removes.
Your QLAC
Uses the IRS Uniform Lifetime Table. The QLAC premium leaves your RMD base until income begins (by age 85), then pays for life and is taxed as ordinary income. Estimate only, not advice.
6. Why waiting pays more
Deferred annuities pay more per dollar than immediate ones for two reasons. The obvious one: the insurer invests your premium longer before paying out. The powerful one is mortality credits. In a pool of annuity buyers, some die before collecting much, and their forfeited premiums effectively subsidize the survivors. The longer the deferral, the larger that subsidy — which is why a DIA or QLAC starting at 80 or 85 can pay a strikingly high amount.
This is exactly why these products are longevity insurance. They reward the scenario you can’t plan your way out of — living far longer than expected — and they do it most cheaply when bought young and deferred long.
7. The tradeoffs
None of this is free. The dominant downside is illiquidity: once you annuitize, the lump sum is generally gone, traded for income you can’t reverse for an emergency. With deferred contracts there’s also death-before-income risk — you could pay in and die before payments start — though return-of-premium or cash-refund options protect heirs at the cost of lower payments.
And the taxes don’t vanish: QLAC income is taxed as ordinary income when it’s paid, so you’ve deferred tax, not erased it. These trade-offs are why income annuities usually fill a slice of a plan — covering essential expenses or hedging longevity — rather than swallowing the whole portfolio. Keep liquid money elsewhere, for instance in a bond or Treasury ladder.
8. Which fits which goal
The decision collapses to a single question — when do you need the income?
| If your goal is… | Use a… |
|---|---|
| Guaranteed income now to replace a paycheck | SPIA |
| Cheap protection against outliving savings in your 80s–90s | DIA |
| Late-life income and lower RMDs from IRA money | QLAC |
Many retirees use more than one — a SPIA to firm up the income floor today, a QLAC to hedge longevity and trim RMDs later. Layer them onto your guaranteed base from Social Security and a pension, and compare against keeping the money invested or in TSP installments before committing, since annuitizing is largely a one-way door.
9. Frequently asked questions
What is the difference between a SPIA, a DIA, and a QLAC?
All three turn a lump sum into guaranteed lifetime income, but they differ in when income starts and how they’re funded. A single premium immediate annuity (SPIA) begins paying within about a year — it’s income you need now. A deferred income annuity (DIA) is bought now but starts paying at a future date, often years later, and because the insurer holds your money longer, the eventual payments are larger. A QLAC is simply a DIA bought inside a traditional IRA or 401(k) that meets special IRS rules, letting you delay income as late as age 85 and exclude the premium from your required minimum distribution calculations. In short: SPIA for income now, DIA for more income later, QLAC for late-life income that also cuts your RMDs.
How does a QLAC reduce required minimum distributions?
When you buy a QLAC with money from a traditional IRA or 401(k), that premium is removed from the account balance used to calculate your RMDs. Because RMDs are figured as your balance divided by an IRS life-expectancy factor, shrinking the balance shrinks the required withdrawal — and the taxable income that comes with it — every year until the QLAC starts paying. For example, carving a $200,000 QLAC out of an $800,000 IRA cuts the RMD base to $600,000, lowering the first-year RMD at 73 from about $30,189 to roughly $22,642. Over the deferral years that reduction can save tens of thousands in taxes, while the QLAC eventually pays guaranteed income for life.
How much can I put in a QLAC?
Under SECURE 2.0, the lifetime QLAC premium limit was set at a flat dollar amount and indexed for inflation — it was $200,000 in 2024 and rose to $210,000 in 2025, and it continues to adjust each year, so confirm the current-year cap before buying. The earlier rule that capped QLAC purchases at a percentage of your account balance was eliminated, so today only the dollar limit applies. Income from a QLAC must begin no later than age 85. Many retirees fund a QLAC up to the cap precisely because it doubles as both longevity insurance and a tool to reduce required minimum distributions during their 70s and early 80s.
Why do deferred annuities pay more than immediate ones?
Two reasons. First, the insurer invests your premium for longer before paying anything out, so it grows. Second and more powerful are mortality credits: in a pool of annuity buyers, some die before collecting much, and their forfeited premiums effectively subsidize the survivors. The longer the deferral, the larger this effect, which is why a deferred income annuity that starts at 80 or 85 pays dramatically more per dollar than an immediate annuity. That’s also why deferred annuities are best understood as longevity insurance rather than investments — they pay off precisely when you live a long time, the scenario your savings most need protecting against.
What are the downsides of these income annuities?
The biggest is illiquidity: once you annuitize, the lump sum is generally gone — you’ve traded access to the principal for guaranteed income, and you can’t get it back for an emergency. With deferred annuities and QLACs there’s also the risk of dying before income begins, though return-of-premium or cash-refund options can protect heirs at the cost of lower payments. Income is taxed as ordinary income when it’s paid (for qualified money like a QLAC), so you’ve deferred taxes, not eliminated them. These trade-offs are why annuities usually fill a slice of a plan — covering essential expenses or hedging longevity — rather than the whole portfolio.