A 71-Year-Old With $600,000 in an IRA Parked $150,000 in a QLAC. Her RMDs Dropped by a Quarter, and the Check Starts at 85.

A 71-year-old retiree with $600,000 in a traditional IRA moved $150,000 into a Qualified Longevity Annuity Contract, or QLAC, with income scheduled to begin at age 85. She has not yet started required minimum distributions. The move is expected to reduce those future RMDs by roughly a quarter. The mechanics behind that reduction, and the trade-offs involved, are worth walking through in plain language.

What a QLAC Actually Is

A QLAC is a specialized type of deferred income annuity purchased inside a tax-qualified account such as a traditional IRA or 401(k). The structure is straightforward: you hand over a premium today in exchange for guaranteed payments that begin at a future date and last for life. The QLAC designation comes from a set of IRS rules that allow the contract’s value to sit outside the balance used to calculate required minimum distributions, as long as the contract satisfies every condition those rules impose. RMDs are the mandatory annual withdrawals the IRS requires from most pre-tax retirement accounts once you reach your required beginning date, the first age at which those withdrawals become compulsory.

Why the Timing at 71 Works

Under SECURE 2.0, anyone born between 1951 and 1959 has a required beginning date of age 73. A retiree who is 71 today has two full years before the first mandatory withdrawal, and that window is exactly where QLAC planning delivers the most leverage. The premium leaves the IRA balance before that balance is ever used to size an RMD, so the exclusion is baked in from day one rather than carved out retroactively.

Where the “Quarter” Comes From

RMDs are calculated by dividing the prior year-end IRA balance by a life expectancy factor from the IRS Uniform Lifetime Table. QLAC assets are excluded from that balance during the deferral period, and that exclusion is the entire mechanism. When a retiree with $600,000 shifts $150,000 into a QLAC, the balance the IRS formula sees shrinks by exactly the same proportion the premium represents of the original account, and the annual RMD shrinks by that same proportion. A smaller number goes into the denominator of the same equation. The retiree’s other spending choices are unaffected by the arithmetic.

Premium Limits and the Age 85 Ceiling

SECURE 2.0 replaced the earlier percentage-of-balance cap with a flat dollar limit indexed to inflation. Per IRS Notice 2025-67, that limit stands at $210,000 for 2026, unchanged from 2025. The cap is a lifetime aggregate across all of an individual’s retirement accounts, so the $150,000 premium in this scenario sits comfortably within current rules. QLAC contracts also require that payments begin no later than the first day of the month following the owner’s 85th birthday, which matches the start date in the headline.

What the Rate Environment Looks Like

Annuity payouts are shaped by long-term interest rates, insurer pricing, mortality assumptions, and contract features. On September 16, 2026, the Federal Reserve raised its target range by 25 basis points to 3.75%-4.00%, its first rate hike since 2023, in response to inflation running above the Fed’s 2% goal. The Fed’s updated projections pointed to the possibility of one additional hike before year-end. That rising rate environment is generally favorable for QLAC quotes, because insurers price these contracts partly off long-term yields. For context, the 10-year Treasury yield climbed toward 5% in the weeks following the September decision.

The 2027 Social Security cost-of-living adjustment matters here because most QLAC payments are level unless a rider is purchased. The Social Security Administration officially announced the 2027 COLA at 3.6% on October 14, 2026, up from the 2.8% adjustment in effect for 2026, and the largest increase since 2023. A level QLAC payment starting at age 85 will have lost meaningful purchasing power if inflation runs at that pace or higher over a 14-year deferral, making the inflation rider question genuinely consequential rather than theoretical.

The IRMAA Angle Most Retirees Overlook

For retirees with income above the first IRMAA threshold of $109,000 for single filers, the RMD reduction a QLAC produces can be worth more in Medicare savings than in direct federal tax savings. Medicare Part B and Part D premiums are set using a two-year lookback on modified adjusted gross income, so a smaller RMD in 2026 can reduce surcharges in 2028. Dropping one income-related monthly adjustment amount tier can save a single filer over $1,100 per year in Part B premiums alone. A 2026-specific planning angle adds to this calculation: the new senior bonus deduction from the One Big Beautiful Bill Act phases out above $75,000 in modified adjusted gross income for single filers, at a rate of six cents for every dollar above that threshold. An RMD that pushes income past that level erodes the deduction dollar by dollar, and a QLAC that shaves that same income preserves it.

Key Caveats

• Illiquid. The $150,000 is committed. It is not available for a medical event, long-term care, or an emergency during the deferral period.
• Insurer credit risk. The guarantee depends on the issuing insurer’s solvency. State guaranty association coverage exists but is limited and varies by state.
• No market participation. The premium does not grow with equity or bond markets during deferral.
• Inflation erosion. Payments are typically level. A rider for cost-of-living adjustments can be added, but it lowers the initial check.
• Mortality risk. Dying before age 85 can leave heirs with little unless a return-of-premium feature (a rider that refunds unpaid premium to a beneficiary) is elected at purchase.
• Tax deferral only. Payments count as ordinary taxable income when they begin.

Reading the Trade

The retiree in this scenario is trading liquidity and market exposure on a slice of her IRA for smaller RMDs through her 70s and early 80s, and a guaranteed check starting at 85. The reduction in RMDs flows directly from removing the premium from the balance the IRS formula sees. Shrinking that balance years before the first mandatory withdrawal is the same idea behind our free guide to defusing the RMD tax bomb, which walks through the moves that work before the required beginning date arrives. Whether the QLAC trade is worth making depends on health, other income sources, heirs, Medicare exposure, and the quotes available from insurers at the time of purchase.

Editor’s note: This article has been updated to reflect the Social Security Administration’s official 2027 COLA announcement of 3.6% on October 14, 2026 (previously reported as a forecast range of 3.5%-3.6%), and to correct the IRMAA income description to the confirmed 2026 first-tier threshold of $109,000 for single filers.

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