QLACs: the annuity that defers RMDs

Last reviewed July 2026 · 5 min read

Required minimum distributions have one blunt rule: once you reach your start age (73 for those born 1951–1959, 75 for 1960 or later), every pre-tax dollar is on the RMD conveyor belt. A qualifying longevity annuity contract — a QLAC — is the one mainstream way to pull money off that belt. You use IRA or 401(k) dollars to buy a deferred income annuity, and the premium simply stops counting in the RMD calculation until the annuity starts paying — which can be as late as age 85.

What a QLAC actually is

A QLAC is a deferred income annuity purchased inside a traditional IRA or an employer plan such as a 401(k) or 403(b) (Roth IRAs are excluded — they have no lifetime RMDs to defer). You hand an insurer a premium today; in exchange, the insurer promises a fixed monthly paycheck for life starting at an age you pick. Treasury regulations (26 CFR §1.401(a)(9)-6(q)) require that payments begin no later than the month after your 85th birthday, and the contract must be a plain fixed annuity — no variable or index-linked contracts. A cash-refund (return-of-premium) death benefit and a survivor annuity for a spouse are both allowed. The purchase itself is funded by a direct transfer from the IRA or plan to the insurer — not a taxable withdrawal — so buying one triggers no tax in the year of purchase.

The 2026 limit: $210,000

SECURE 2.0 (2022) rebuilt the QLAC rules: it repealed the old 25%-of-account-balance cap and set a flat dollar limit of $200,000, indexed for inflation. The limit rose to $210,000 in 2025, and IRS Notice 2025-67 holds it at $210,000 for 2026. It is a per-person lifetime limit across all your QLACs, so a married couple can shelter up to $420,000 between them.

How the RMD math changes

RMDs are computed as your prior December 31 pre-tax balance divided by an IRS life-expectancy factor. Money inside a QLAC is excluded from that balance. Move $210,000 of a $1,000,000 IRA into a QLAC at 70, and at 75 your RMD is computed on roughly the remaining $790,000 plus growth — at the age-75 divisor of 24.6, that is about $8,500 less forced income in the first year alone, with the gap compounding as divisors shrink through your 80s. The deferral is not forgiveness: when payments begin (by 85), every check is ordinary income for the rest of your life, and a long-lived retiree can end up with more taxable income in their late 80s than the RMDs would have produced.

What you give up

A QLAC is longevity insurance, and insurance has premiums. The purchase is essentially irrevocable — there is no cash surrender value to tap in an emergency. The paycheck is fixed in nominal dollars unless you buy a cost-of-living rider, so twenty years of inflation can erode it substantially. You are taking on the insurer’s credit risk for decades (state guaranty associations backstop only up to state-specific limits). And if you die early without a return-of-premium feature, the insurer keeps the difference — that forfeiture is precisely what funds the higher payouts for those who live long. The cleanest case for a QLAC is a retiree who worries about outliving money in their 90s and wants a guaranteed floor, not one hunting for a tax trick.

Try it in Deorbit Plan

Deorbit Plan does not model QLAC purchases directly, but the two sides of the trade map cleanly onto things it does model. Duplicate your plan as Scenario B, then: (1) in the Accounts panel, reduce the Pre-tax (401k + trad IRA + ESOP) balance by the premium — that automatically shrinks every future RMD, which is exactly what the exclusion does; and (2) in the Household panel under Pensions & annuities, add the insurer’s quoted payout as Monthly at start age ($, nominal) with Start age 85 and Annual COLA 0%. The Compare view and the RMDs vs spending chart then show the reshaped income: lighter forced withdrawals in your 70s, a guaranteed ordinary-income floor from 85 on, and the effect on lifetime taxes and MAGI-based cliffs.

Educational content only — not financial, tax, or investment advice.

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