The QLAC Strategy That Lets a 70 Year Old With $2 Million Defer $200,000 of RMDs Until Age 85

A 70 year old retiree sitting on $2 million in a traditional 401(k) has roughly three years before required minimum distributions start dictating tax bills. The conventional planning advice (Roth conversions, charitable distributions, asset location) gets all the airtime. A less discussed tool, the Qualified Longevity Annuity Contract, can legally remove a slice of that balance from the RMD calculation entirely and turn it into guaranteed income that starts at 85.

The mechanics are worth walking through with real numbers, because most retirees in this balance range have never seen them laid out.

How the QLAC Carve-Out Actually Works

SECURE 2.0 lifted the QLAC cap to a flat dollar limit indexed annually. For 2026, the per-person ceiling is $210,000, up from the 2025 figure. Money moved from a traditional 401(k) or IRA into a QLAC is excluded from the year-end balance the IRS uses to compute RMDs. The contract itself does not pay anything until the income start date the buyer chooses, which can be any age from 70.5 up to 85.

Apply that to the $2 million account. Move $210,000 into a QLAC and the RMD base drops to $1.79 million. Using the IRS Uniform Lifetime Table divisor of 26.5 at age 73, the first RMD math looks like this:

• RMD on the full $2 million: roughly $75,472
• RMD on $1.79 million after the QLAC carve-out: roughly $67,547
• First-year reduction in forced ordinary income: about $7,925

That gap widens every year the deferred balance compounds. Over the 12 years between 73 and 85, the cumulative RMD reduction on a steadily growing account typically clears $100,000, and on a strong-return path can approach the $200,000 figure that gives this strategy its appeal.

Why the Tax Savings Compound

The RMD reduction does more than defer $7,925 of ordinary income. For retirees near an IRMAA threshold, it is the difference between a normal Medicare premium and a surcharge. The first 2026 IRMAA tier kicks in above $109,000 of modified adjusted gross income for single filers and $218,000 for joint filers. A retiree drawing Social Security plus pension plus this RMD can easily push into surcharge territory, where each tier adds $70 to $400 per month per spouse on Part B and Part D combined.

Shaving roughly $8,000 off the first RMD, and more in later years, is exactly the kind of lever that keeps a household one bracket lower on IRMAA and below the 85% Social Security inclusion ceiling. The effective marginal rate avoided can run closer to 35% than the headline 22%.

The Income Side at 85

A 70 year old buying a $210,000 QLAC today with an age 85 start date is locking in payout rates that look unusually rich because of the long deferral and the mortality credits the insurer captures. Current quotes from the handful of carriers active in this market (New York Life, Mutual of Omaha, and MassMutual being the largest) generally land in the $35,000 to $45,000 per year range for a single life contract with no death benefit. Adding a return-of-premium rider that protects heirs if the annuitant dies before age 85 lowers the payout by roughly 10% to 15%.

Couples have a second lever. A joint-life QLAC pays as long as either spouse is alive, at the cost of a lower monthly check. For a household where one spouse has longevity in the family history, that trade often pencils out.

What to Do Before the Three-Year Window Closes

1. Pull quotes from at least three carriers. QLAC pricing varies meaningfully between insurers, and the market is thin enough that a broker who runs the full panel (Immediate Annuities, Blueprint Income, Stan The Annuity Man) will surface a wider spread than going direct.
2. Decide on the income start date before the death benefit. Pushing the start from 80 to 85 typically lifts the annual payout by 40% or more. That single decision moves more dollars than the rider choice.
3. Model the RMD without the QLAC against IRMAA brackets first. If projected RMDs plus Social Security plus other income would land above $109,000 single or $218,000 joint, the Medicare surcharge math alone often justifies the carve-out. If the household is comfortably below those tiers, the case is mostly about longevity insurance rather than tax planning.

The QLAC works as a longevity hedge bolted onto an RMD reduction, and the only window to use it is the one between retirement and 73.