QLAC and RMDs 2026: How a Longevity Annuity Cuts Your Required Withdrawals

What a QLAC actually does for your RMDs

Here’s the direct answer: a QLAC (Qualified Longevity Annuity Contract) lets you take a slice of your traditional IRA or 401(k) money, hand it to an insurance company, and defer income from it as late as age 85 — while that slice stops counting toward your Required Minimum Distribution the moment it moves into the contract. You’re buying two things at once: a smaller RMD today, and longevity insurance that keeps paying you if you live well past average life expectancy.

My read after digging into how retirees actually use these: treat the RMD reduction as a nice side effect, not the main event. The real product is insurance against outliving your money. If you frame it purely as a tax play, you’ll end up sizing the purchase wrong — either too small to matter or too large to leave yourself enough liquidity.

Most people run into this decision in their late 60s or early 70s, right around when RMDs start kicking in (age 73 under current law, moving to 75 for younger cohorts) and they realize the withdrawal is bigger than they expected — and pushing them into a higher marginal bracket. If your IRA has been compounding for decades and holds a chunk of long-term winners like Visa (V) or Corning (GLW), that growth is exactly what’s now forcing a bigger mandatory withdrawal than you actually need to spend.

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What is a QLAC, exactly?

A QLAC is a type of deferred income annuity — you pay a premium now, income starts later, and it pays for as long as you live. What separates a QLAC from a generic annuity is that it has to meet a specific set of IRS rules:

• It must be funded with money from a traditional IRA, 401(k), 403(b), or similar pre-tax retirement account (Roth accounts generally don’t qualify).
• The latest possible income start date is age 85.
• There’s a flat dollar limit on how much premium you can put in, applied across all your accounts combined.
• The contract can’t build meaningful cash value — you’re trading liquidity for the RMD exclusion and the income guarantee.

SECURE 2.0, signed at the end of 2022, rewrote the QLAC rules in a way that made them more useful. The old system capped premiums at 25% of your account balance, which meant people with smaller IRAs could barely buy a meaningful QLAC. That percentage cap is gone. In its place is a flat premium limit — $200,000 starting in 2023, indexed for inflation in subsequent years — so the dollar amount you can shelter is the same whether your IRA holds $300,000 or $3 million.

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How does a QLAC cut my RMDs?

The RMD formula is simple on paper: take your prior December 31 account balance, divide by the IRS life expectancy factor for your age, and that’s your required withdrawal for the year. A bigger balance means a bigger required withdrawal.

Money you’ve moved into a QLAC is subtracted from that balance before the calculation happens. Say you have $900,000 across your IRAs and move $150,000 into a QLAC. Your RMD going forward is calculated on $750,000, not $900,000 — and the $150,000 stays out of the calculation entirely until QLAC income actually starts.

Component	Counted toward RMD calculation	Excluded from RMD calculation
Regular traditional IRA/401(k) balance	Yes	—
Balance before QLAC purchase	Yes	—
Premium moved into a QLAC (pre-income)	—	Yes
Income actually paid out by the QLAC	Taxed as ordinary income the year received	—

The earlier in retirement you make the move, the more this compounds in your favor — because the money removed from the RMD calculation never gets counted again even if the rest of your portfolio (and, in theory, the annuity’s underlying reserves) keeps growing.

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Who should actually buy one?

QLACs aren’t a universal fit. Running through who benefits and who doesn’t makes the decision much clearer.

Situation	QLAC fit	Why
Family history of longevity, worried about outliving savings	Strong	This is literally the insurance QLACs are designed to sell you
RMDs projected to push you into a higher tax bracket in your 70s	Strong	Premium is subtracted from the balance the RMD is calculated on
Social Security plus other guaranteed income already covers baseline expenses	Strong	You can afford to give up liquidity on the QLAC slice
You might need a large lump sum for medical costs or a major repair	Weak	QLAC premium is effectively locked up
Health concerns suggest below-average life expectancy	Weak	You need to live to the payout start date and beyond to come out ahead
You want to keep chasing market returns with this money	Weak	QLAC premiums sit in the insurer’s general account, not the market

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What are the real trade-offs?

It’s easy to get seduced by the RMD math and skip past what you’re actually giving up.

You lose liquidity. Once the premium moves into the QLAC, it’s largely gone as a source of emergency cash. A roof repair or an unexpected medical bill can’t be paid from that pool of money.

You give up market upside. QLAC premiums sit in the insurance company’s general account, not in stocks or bonds you control. If markets run hot during your deferral period, you don’t participate the way you would have if the money had stayed invested.

You take on insurer credit risk. There’s no FDIC-style federal backstop for annuities. Coverage comes from state guaranty associations, and those limits vary by state and aren’t unlimited. A carrier’s financial strength rating (A.M. Best, S&P, Moody’s) should matter as much as the quoted payout when you’re comparing offers.

Inflation erodes the payout. A standard fixed QLAC pays the same nominal dollar amount for life. If your deferral period runs 10-15 years, inflation can meaningfully shrink what that payment is actually worth in real terms by the time it starts. A COLA rider addresses this, at the cost of a lower starting payment.

Actual payout amounts depend heavily on your age at purchase, the deferral period you choose, prevailing interest rates, and the specific insurer — this piece intentionally doesn’t quote hypothetical monthly numbers, because any figure would be fabricated. Get real quotes from multiple carriers before deciding on anything.

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How do I actually buy one?

1. Run the RMD math with and without a QLAC first. A financial planner or a good calculator can show you what your RMDs look like in your 70s and 80s with and without the QLAC removed from the balance, so you’re sizing the purchase to an actual number instead of a round one.
2. Get quotes from several carriers. Payouts for the same premium and start age can vary meaningfully between insurers. Compare the financial strength ratings alongside the payout.
3. Decide on the income start age and survivor option. A single-life QLAC pays more per month than a joint-life version that continues paying your spouse after you die — decide which trade-off fits your household.
4. Move the money via trustee-to-trustee transfer. Your existing IRA or 401(k) custodian sends funds directly to the insurer, which avoids triggering a taxable distribution in the process.
5. Confirm you’re within the aggregate premium limit. If you have multiple IRAs or old 401(k)s, double-check with the insurer and your custodian that combined QLAC purchases don’t exceed the flat limit.

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Pre-purchase checklist

• Do you have enough guaranteed or reliable income (Social Security, pension, dividends) to cover baseline expenses without touching the QLAC?
• Have you gotten quotes from at least three or four carriers and compared their financial strength ratings?
• Have you decided on the income start age and whether to include a joint-life survivor option?
• Do you understand the trade-off between adding a COLA rider and accepting a lower starting payout?
• Will you still have adequate emergency liquidity after the premium moves out of your IRA?
• Have you compared projected RMDs with and without the QLAC alongside a financial planner or tax preparer?
• Is the transfer structured as trustee-to-trustee so it doesn’t trigger a taxable event?

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A failure case: maxing out the limit without checking liquidity

A 71-year-old retiree decided to shrink future RMDs as much as possible and moved the full flat-limit amount from a traditional IRA into a QLAC, setting the income start date at 85 to maximize the eventual monthly payment.

Eighteen months later, a plumbing failure and a spouse’s unplanned surgery hit in the same year. The retiree needed a five-figure sum quickly. The remaining liquid IRA balance had shrunk enough after the QLAC purchase that covering both expenses meant either selling other holdings at an inconvenient time or taking on a short-term loan — the QLAC premium itself was essentially untouchable.

The lesson isn’t “don’t buy a QLAC.” It’s that the purchase amount should be set by how much liquidity you can comfortably live without for the next 10-15 years, not by how much of the flat limit you’re allowed to use.

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Fitting a QLAC into the bigger retirement picture

A QLAC rarely stands alone — it’s one piece of a broader income plan. If you’re within a year or two of leaving a job that has a 401(k), working through an after-quitting-job checklist first — deciding whether to roll that balance into an IRA or leave it in the old plan — clarifies exactly which account the QLAC premium should come out of, and when.

If your IRA has grown in part because it’s held long-term compounders like Visa (V) or Corning (GLW), think carefully about which holdings actually fund the QLAC transfer. Liquidating a position you’d rather keep just to hit a premium target adds a market-timing decision on top of the annuity decision — it’s usually cleaner to identify cash or bond-like holdings to move first.

Downsizing is another lever some retirees pull around the same time as an RMD conversation. If a move or a smaller home is on the table, browsing Redfin market data and outlook is a reasonable way to get a feel for current housing trends before deciding whether home equity or QLAC income should carry more of your retirement budget. And if you’re comparing where to actually place and manage retirement accounts, a look at how embedded finance platforms stack up can help you see how different custodians and advisory platforms handle annuity purchases and transfers.

For a broader look at how withdrawals from taxable brokerage accounts get taxed alongside your retirement account income, the stock capital gains tax guide is a useful companion read.

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This article is for informational purposes only and is not financial, tax, or legal advice. Whether a QLAC makes sense for you, how much to buy, and which carrier to choose depend heavily on your personal assets, health, and tax situation. Consult a licensed financial advisor, CPA, or insurance professional before purchasing an annuity. Limits and rules referenced here reflect the time of writing — confirm current IRS regulations and carrier contract terms before acting.