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). A deferred income annuity is a contract where you hand over a premium today in exchange for guaranteed payments that start 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 meets 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, which is the first age at which those withdrawals become compulsory.

Why the Timing at 71 Works

Under SECURE 2.0, a person born between 1951 and 1959 has a required beginning date of age 73. A retiree who is 71 today has not started RMDs yet, so buying the QLAC before the first mandatory withdrawal is the planning window most advisors point to. The premium leaves the IRA balance before that balance is ever used to size an RMD, which means the exclusion is baked in from the start 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. That is the entire mechanism. If a retiree with $600,000 shifts $150,000 into a QLAC, the balance used to compute the RMD shrinks by exactly the same proportion that the premium represents of the original account, and the annual RMD shrinks by that same proportion. The divisor is applied to a smaller number; the retiree’s spending choices are otherwise unchanged 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. The IRS confirmed that limit at $210,000 for 2026, per IRS Notice 2025-67, unchanged from 2025. The cap is a lifetime figure across all of an individual’s retirement accounts, so the $150,000 premium in this scenario sits comfortably within current limits. QLAC rules 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. The 10-year Treasury yield stood at 4.67% on August 27, 2026, and climbed toward 5% by mid-September as the Federal Reserve raised its target range to 3.75%–4.00% on September 16, the central bank’s first rate hike in more than three years. That rising rate environment is generally favorable for QLAC quotes, since insurers price these contracts partly off long-term yields. For comparison, the FDIC national average 12-month CD rate was 1.71% as of mid-August 2026, though top online banks pay multiples of that average.

The 2027 Social Security cost-of-living adjustment matters in this context because most QLAC payments are level unless you purchase an inflation rider. Current forecasts put the 2027 COLA in the 3.5%–3.6% range, up from the 2.8% adjustment that took effect in 2026, with the official announcement from the Social Security Administration expected on October 14. A level QLAC payment that starts at 85 will have lost meaningful purchasing power if inflation runs at that pace or higher over a 14-year deferral period, making the inflation rider question more than a hypothetical.

The IRMAA Angle Most Retirees Overlook

For retirees with income in the $100,000 to $200,000 range, the RMD reduction produced by a QLAC can be worth more in Medicare savings than in 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 (IRMAA) tier can save a single filer thousands of dollars per year in premiums. A 2026-specific planning wrinkle adds to this: the new senior bonus deduction phases out above $75,000 in modified adjusted gross income for single filers, at a rate of $0.06 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 can preserve 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 a smaller RMD in her 70s and early 80s and a guaranteed check starting at 85. The reduction in RMDs is a mechanical outcome of 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 it 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 Federal Reserve’s September 16, 2026 rate hike to a target range of 3.75%–4.00%, the subsequent rise in the 10-year Treasury yield toward 5%, and the upward revision in 2027 Social Security COLA forecasts to 3.5%–3.6% from TSCL and AARP. A new section has been added covering the IRMAA and senior bonus deduction interactions that make QLAC planning particularly time-sensitive in 2026.

Contact [email protected] for any questions or corrections.