A 70-year-old with a $2 million traditional 401(k), no immediate withdrawal need, and three years before required minimum distributions kick in at 73 faces a looming tax bill. A QLAC (qualifying longevity annuity contract) purchased for $200,000 could pay roughly $42,704 per year starting at 85, and that money leaves the RMD calculation the moment it moves.
The value lies in what happens to your RMD schedule, Medicare premiums, and tax bracket the year you carve $200,000 out of the qualified pile. It starts working the moment the annuity is issued.
How the RMD Math Actually Changes
Under SECURE 2.0, the 2026 QLAC premium cap sits at $210,000 per person, indexed for inflation and no longer capped at 25% of your account. A $200,000 purchase fits comfortably under that ceiling. Once issued, that $200,000 is excluded from the balance used to compute your RMD each year until QLAC payments begin, which can be pushed as far as the first of the month after your 85th birthday.
At 73, the Uniform Lifetime Table divisor is 26.5. On a $2 million balance, your first RMD is roughly $75,500. Move $200,000 into a QLAC and the RMD is calculated on $1.8 million, producing about $67,900. Year one, you defer roughly $7,500 of forced income. Repeat that every year from 73 through 84, with the divisor shrinking as you age, and cumulative deferred RMDs comfortably clear $150,000.
The Tax Cascade That Makes This Worth Doing
The reason this matters is what the RMD dollar triggers beyond the withdrawal itself.
The 2026 IRMAA thresholds start at $109,000 in modified adjusted gross income for a single filer and $218,000 for joint. Cross the first tier and Medicare Part B premiums add a surcharge on top of the standard $202.90 monthly base, with a two-year lookback that makes the sting feel retroactive. Above the same income range, up to 85% of Social Security benefits become taxable. A retiree in the 22% federal bracket who nudges into IRMAA and pulls Social Security into the taxable zone faces an effective marginal rate near 40% on the next RMD dollar.
Shaving $7,500 off your first RMD, then more each year as the divisor tightens, keeps you a bracket below the IRMAA cliff. That is the real product a QLAC sells. Lifetime income at 85 is the bonus.
Is the QLAC Rate Actually Competitive Right Now?
Annuity payouts scale with the long end of the Treasury curve, and the long end is currently generous. The 10-year yield sits at 4.62%, near its 12-month high, and the 30-year at 5.08% gives insurers room to price 15-year deferred income aggressively. Fed funds have been parked at 3.75% since December, so pricing on a QLAC quoted today is stable rather than moving week to week.
The national 12-month CD average sits at just 1.65%, and current I-bond composite rates are 4.26%. A QLAC quoted around a 20% annual payout of the premium at 85 is a mortality-credit product. You cannot manufacture that return with any liquid instrument, because part of the payout comes from the pool of annuitants who die before payments start.
What to Do This Week
- Pull three real QLAC quotes. Request them from a fee-only broker or a platform like immediateannuities.com or Blueprint Income. Compare annual income at 85, cash refund versus life-only, and whether joint life makes sense. Rates change weekly, so a stale quote is a bad quote.
- Model your MAGI for the year Medicare uses in its two-year lookback. If your projected age-73 income sits within $10,000 of the $109,000 single or $218,000 joint IRMAA threshold, the QLAC’s RMD-shrinking function is worth more than its lifetime income promise. Run the lookback for the year you turn 73, and treat 71 as the year that actually matters.
- Coordinate with Social Security timing and the 2026 COLA. The 2.8% adjustment is already flowing through checks, and layering a $50,000-plus QLAC payment on top of that at 85 will push most retirees firmly into taxable-benefit territory. Use your 70s to run Roth conversions while the RMD base is smaller.
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