QLAC at 75: Defer $200K of RMDs With Longevity Income

The decision: Robert, age 70, with a $1M IRA

Robert is 70, single, and lives in Florida. He has $1,000,000 in a traditional IRA, a paid-off house, and Social Security that already covers his fixed expenses. He was born in 1956, so his RMDs begin at age 73 (SECURE 2.0 §107). He does not need the RMD money to live on — but he is going to be forced to pull it out and pay ordinary income tax on it anyway. And he has two real fears: a tax bill he does not need, and the possibility he lives to 95 and watches the portfolio drain.

A QLAC answers both at once. Robert moves $200,000 of the IRA into a Qualified Longevity Annuity Contract that starts paying at age 85. Two things happen immediately. First, that $200,000 is carved out of the balance the IRS uses to compute his RMD — every year until the annuity turns on. Second, he has locked in a guaranteed lifetime check for the years when longevity risk is real. Below is exactly how the numbers move.

What a QLAC is, in one paragraph

A QLAC is a deferred income annuity you buy inside a tax-deferred retirement account — a traditional IRA, 401(k), 403(b), or governmental 457(b). You hand an insurer a lump sum today; the insurer guarantees a monthly check starting at a future date you choose, no later than age 85. The reason it exists in the tax code at all is Treas. Reg. §1.401(a)(9)-6, the regulation that lets the premium escape your RMD calculation. SECURE 2.0 §202 (effective 2023) cleaned up the rules: it killed the old 25%-of-balance cap and set a flat dollar limit, indexed for inflation. For 2026 that limit is $210,000.

The RMD math: why $200K leaving the base matters

Your RMD is your prior-year-end account balance divided by a divisor from the IRS Uniform Lifetime Table (Pub. 590-B, Table III). At age 73 the divisor is 26.5; at 75 it is 24.6. The smaller the balance the IRS sees, the smaller your forced withdrawal — and the smaller the taxable income stacked on top of your Social Security and any other income.

Here is Robert’s first RMD year (age 73) with and without the $200,000 QLAC, assuming the IRA is worth $1,000,000 at the prior year-end:

That $7,547 of deferral repeats and grows every year the QLAC stays in deferral. Run it from 73 to 85 and Robert defers well over $100,000 of taxable income out of his peak-RMD window — the exact years his Social Security, pension, and RMDs would otherwise pile up and possibly push him into a higher bracket or trigger an IRMAA Medicare surcharge.

The IRMAA angle most people miss

Medicare premiums are means-tested on your modified adjusted gross income from two years prior (Social Security Act §1839(i); 42 U.S.C. §1395r). In 2026, a single filer crosses the first IRMAA tier at $103,000 MAGI, which jumps the Part B premium from $185 to $259/month and adds a $13.70/month Part D surcharge — about $1,050 more per year ($888 in Part B plus ~$164 in Part D). For a retiree sitting just under a tier, shaving $7,500 off the RMD can be the difference between staying under the threshold and paying that surcharge. The QLAC’s value is not only the income-tax deferral — it is keeping your MAGI off the surcharge cliffs.

What the QLAC pays back: the longevity side

The RMD savings are real but modest. The headline reason to own a QLAC is the guaranteed income it turns on later. Robert’s $200,000 premium, deferred to age 85 on a single life with no death benefit, buys on the order of $55,000–$70,000/year for life at illustrative current rates — the exact figure varies by insurer, gender, and the interest-rate environment on the day you buy. The payout is that high precisely because so much of the premium is funding mortality credits and 15 years of internal compounding. If Robert lives to 95, he collects on the order of $600,000 on a $200,000 outlay. That is the trade: you give up access to the principal and bet on your own longevity.

• Life-only: highest monthly payout, nothing to heirs if you die before payments exceed premium.
• Cash-refund / return-of-premium rider: guarantees beneficiaries receive at least the unpaid portion of your premium; cuts the payout roughly 10–20%.
• Joint life (you + spouse): pays until the second death; lower monthly amount but protects a surviving spouse.

The eligibility and mechanics checklist

1. Source of funds. Traditional IRA, 401(k), 403(b), or governmental 457(b). Not Roth — Roth IRAs have no owner RMDs, so there is nothing to defer (Treas. Reg. §1.401(a)(9)-6).
2. Premium cap. $210,000 total across all your accounts for 2026. It is a per-person aggregate, not per account.
3. Latest start date. Income must begin by the first of the month after age 85. You can choose any start date up to that.
4. Exclusion from RMD base. The contract value is left out of the year-end balance on Form 5498 that feeds your RMD math — automatically, every year, until payments start.
5. Fixed only. A QLAC must be a fixed annuity. Variable and indexed contracts do not qualify under the regulation; no cash surrender value, no commutation.

When to buy and how to size it

Timing matters more than people expect. The cleanest moment to buy a QLAC is in the gap years after you retire but before RMDs begin — for Robert, ages 70 to 72. In those years his earned income has stopped, his bracket is low, and the contract value starts coming out of his RMD base the very next year-end. Buying it the year before your first RMD means the exclusion is working from your very first required distribution forward, not retroactively.

For sizing, a useful rule of thumb is to cap the QLAC at the smaller of the $210,000 statutory limit or roughly 15–25% of your total tax-deferred balance. That band is large enough to move the RMD and buy a meaningful lifetime check, but small enough that the illiquidity does not strand you. Walk through the test before you sign:

• Liquidity floor. After the premium leaves, do you still have 5–7 years of spending in liquid or near-liquid assets outside the contract? If not, the QLAC is too big.
• Bracket forecast. Will your taxable income in your late 80s and 90s likely be at or below today’s bracket? If a spouse’s death will push you from MFJ to single rates, the deferred income may land in a higher bracket — model that before deferring.
• Health and family longevity. Honest answer: do you expect to reach 85+? The contract only rewards you if you do.
• Rider trade-off. Decide up front whether the ~10–20% payout haircut for a return-of-premium rider is worth guaranteeing your heirs get back the unpaid premium, or whether the higher life-only payout fits a plan where other assets already cover legacy.

Robert lands on $200,000 (20% of his $1M IRA) with a cash-refund rider. He keeps $800,000 liquid, his heirs are protected against an early death, and his RMD shrinks the moment the contract is issued.

What most people get wrong about QLACs

Myth: “A QLAC eliminates the tax on the money I move into it.” It does not. A QLAC defers tax; it never erases it. When the annuity turns on (by 85), every payment is fully taxable as ordinary income, just like a normal IRA withdrawal — and those payments satisfy the RMD for the QLAC portion. You are moving the tax bill from your 70s to your late 80s and 90s, betting your bracket is similar or lower then. For someone whose income drops after a spouse dies or who simply wants to smooth the RMD cliff, that bet often pays off. But anyone selling a QLAC as a way to “avoid” the tax is misrepresenting it.

Myth: “The QLAC pays for itself in RMD savings.” No. On a $200,000 premium, the annual RMD deferral is in the low-thousands of dollars of tax — meaningful, but it is the longevity insurance and the IRMAA-threshold management that justify locking up $200,000, not the RMD line item alone. Buy a QLAC because you want a guaranteed paycheck at 85 and want to flatten your 70s tax curve — not because the RMD math alone makes you whole.

Myth: “I should put the whole $210K in.” The premium is illiquid and the principal is gone for your access. A QLAC should be sized as the longevity slice of a plan that still keeps liquid assets and earlier income sources intact. Robert put in $200,000 of a $1,000,000 IRA — 20% — precisely because he wanted the other $800,000 liquid for spending, market upside, and heirs.

QLAC vs. delaying Social Security: which longevity tool first?

Both are longevity insurance, but they are not interchangeable. Use this to sequence them:

The order is almost always: delay Social Security first (it is the cheapest, inflation-indexed longevity insurance available — an 8%/year guaranteed delayed-retirement credit from full retirement age, 67 for anyone born in 1960 or later, to age 70 under Social Security Act §202(w) / 42 U.S.C. §402(w)), then layer a QLAC on top for the longevity tail and the RMD-base benefit that Social Security cannot give you. A retiree who does both has built two floors of guaranteed lifetime income under the portion of the plan exposed to markets and sequence risk.

The decision lever

Buy a QLAC when three things are true: you have a traditional IRA or 401(k) large enough that RMDs will create income you do not need, you are genuinely worried about outliving the portfolio (family history of longevity, healthy at 70), and you can lock up six figures without touching it. Robert checks all three — so moving 20% of his IRA into a $200,000 QLAC deferred to 85 trims his RMD every year from 73 on, keeps his MAGI below the IRMAA cliff in his peak-income years, and guarantees a ~$60,000+/year check for the decades that scare him. Skip the QLAC if your portfolio is small, you need liquidity, or your longevity is in doubt — in those cases the illiquidity costs more than the deferral is worth. The lever is not “annuity or not” — it is whether carving $200,000 out of your RMD base and turning it into a lifetime paycheck at 85 is worth giving up access to that principal today.