Buy a $210,000 QLAC Inside Your IRA and the IRS Stops Counting That Money Toward RMDs Until You Turn 85
A little-known corner of the tax code lets retirees legally hide a chunk of their IRA from the IRS formula that forces taxable withdrawals every year, but the trade-off is severe enough that most financial advisors never bring it up.
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Move up to $210,000 from a traditional IRA into a qualified longevity annuity contract, and the IRS treats that slice as if it vanished from the balance that drives your required minimum distribution. The money is still yours. It just stops counting until income begins, as late as age 85.
That is the entire pitch of a QLAC, a niche piece of the tax code that has quietly become one of the few legitimate ways to shrink RMDs on purpose.
What a QLAC Actually Is
A qualified longevity annuity contract is a deferred income annuity purchased inside a traditional IRA, 401(k), 403(b), or governmental 457(b). Treasury greenlit it in final regulations issued in 2014 under Reg. 1.401(a)(9)-6, and the SECURE 2.0 Act rewrote the dollar limits in 2022.
The mechanics are narrow. You hand an insurance company a lump-sum premium today. The insurer promises a fixed monthly check starting at a future date you pick, no later than the first day of the month after you turn 85. In exchange for that promise, the IRS lets you subtract the QLAC premium from the year-end IRA balance used in the RMD formula.
Under SECURE 2.0, the lifetime premium ceiling is a flat dollar cap (the old 25%-of-balance rule was scrapped), $200,000 in 2023 and indexed for inflation thereafter. For the 2026 tax year the cap sits at $210,000. That is per person, across all your retirement accounts combined.
How the RMD Math Actually Shifts
Consider a 73-year-old with $1,000,000 in a traditional IRA. Using the Uniform Lifetime Table divisor of 26.5, the first RMD is roughly $37,736, taxed at ordinary rates and stacked on top of Social Security and any pension.
Now the same retiree moves $210,000 into a QLAC that starts paying at 85. Only $790,000 counts for the RMD calculation. New RMD: about $29,811. The $210,000 parked in the QLAC generates no distribution requirement at all for 12 years.
Multiply that gap across a dozen years and the effect on lifetime taxable income, IRMAA tiers, and the Social Security torpedo can be material, especially for a retiree already brushing the top of the 12% or 22% bracket.
Shrinking that first required withdrawal is the whole game for retirees with big pre-tax balances (we walked through the full defusing playbook, QLACs included, in a free guide on the first-year RMD tax bomb).
What You Trade Away
First, liquidity is gone. Once the premium is paid, you cannot pull the money back, take a loan against it, or use it for a bad-year emergency. QLACs are not required to offer a cash surrender value, and most do not. If markets tank or medical bills spike at 78, that $210,000 is not available.
Second, the tax is deferred. Every dollar the QLAC eventually pays out is taxed as ordinary income, exactly like a regular IRA distribution. This is a timing tool. You are trading smaller RMDs in your 70s and early 80s for larger, guaranteed taxable checks starting later.
Third, pricing depends on interest rates and mortality credits. With the 10-year Treasury at 5.00% as of September 15, 2026, up from 4.06% a year earlier, QLAC payout rates are meaningfully higher than they were during the low-rate era. That matters, because the case for locking money away weakens fast when rates are stingy.
Who It Suits, Who It Does Not
A QLAC earns its keep for a specific profile: healthy retirees with longevity in the family, a large traditional IRA relative to spending needs, other liquid assets to cover shocks, and a real fear of outliving the portfolio. Shrinking RMDs is a bonus; the core product is longevity insurance.
It is a poor fit for anyone with a short life expectancy, thin non-IRA reserves, or a plan that already handles longevity through a pension, delayed Social Security, or a spouse’s benefits. It is also wrong for savers who value flexibility over guaranteed income. Suze Orman’s long-running caution against annuities that lock up IRA funds applies here too if you have not stress-tested the liquidity loss.
Before You Wire the Premium
Get quotes from multiple highly rated insurers, confirm the start-date election and any survivor or return-of-premium riders (each rider trims the payout), and run the after-tax numbers against a Roth conversion using the same dollars. Both are legitimate RMD-reduction plays, and they solve different problems.
This is the kind of decision worth pricing with a fee-only fiduciary or CPA before the check clears, because it does not unwind.
This article is for informational purposes only and is not tax, legal, or investment advice. Consult a qualified tax professional about your specific situation.
Contact [email protected] for any questions or corrections.
Jake has been been working in financial media for almost 15 years. He focuses on all things personal finance for 24/7 Wall St. with high hopes to educate and entertain. Most recently, Jake spent 12 years working various roles at The Motley Fool. He started copy editing fool.com content, worked on premium and marketing campaigns, and helped launch The Ascent, a personal finance brand.
His work has been featured on platforms like MSN, Yahoo Finance, USA Today, and more. He's written about credit cards, social security, ETFs, savings accounts, and just about anything else you can imagine when thinking about money. Jake love to cook, play golf, and tell people he's never had a cavity. (It's true!)
