QLACs are purchased within a retirement account, like a 401(k) or IRA, with pre-tax dollars. As with other financial products purchased in these plans, there generally is no taxable event until funds are withdrawn.
Starting between ages 70½ and 85, the QLAC will produce a steady income benefit (either every month, quarter, or year), which will be fully taxable at your applicable ordinary income tax rate. Because many people drop to lower tax brackets in retirement, the QLAC is an attractive way to defer taxes until less will be owed.
This answer is not meant as tax advice. You should consult professional advisors before making any tax decisions. This answer does not contain investment advice or recommendations to buy or sell any specific securities.
Learn more about QLACs, how they work, and how they can defer your taxes in the QLAC Guide.