There is a retirement account maneuver that simultaneously reduces mandatory taxable withdrawals from an IRA, creates a guaranteed income floor for late life, and helps manage Medicare premium surcharges — all from a single contract purchase. Most people who would benefit from it have never heard of it. It is called a Qualified Longevity Annuity Contract, or QLAC. It is a specific type of deferred income annuity purchased inside a traditional IRA or 401(k) using pre-tax retirement funds. The IRS excludes the QLAC balance from Required Minimum Distribution calculations for as long as the income
Required Minimum Distributions force retirees to take taxable withdrawals from traditional IRAs and 401(k)s starting at age 73 (for those born between 1951 and 1959) or age 75 (for those born in 1960 or later) under the SECURE 2.0 Act. The amount of each RMD is calculated by dividing the prior year-end account balance by a life expectancy factor from IRS tables. A larger account balance means a larger mandatory withdrawal — and a larger tax bill. For retirees who do not need all of their RMD income to cover expenses, these mandatory withdrawals create a tax burden that accumulates over years. Income taxes on the RMD, potential Medicare premium surcharges triggered by higher income, and increased taxation of Social Security benefits can all compound the cost. A QLAC addresses this by removing up to $210,000 of IRA assets from the RMD base. That $210,000 is excluded from the annual RMD calculation for the entire deferral period — reducing mandatory taxable income in the 70s and early 80s while simultaneously creating a guaranteed income floor that begins when the contract specifies.
Before the SECURE 2.0 Act of 2022, QLAC contributions were capped at the lesser of $145,000 or 25 percent of the account balance. The 25 percent rule created an unintended problem: retirees with smaller balances who had the greatest need for longevity insurance could contribute the least in absolute terms. SECURE 2.0 eliminated the 25 percent rule entirely. The current limit — $210,000 as of 2025 and 2026 — is a flat dollar amount regardless of account size. A retiree with a $300,000 IRA and a retiree with a $2,000,000 IRA both have access to the same $210,000 maximum. For married couples, each spouse can contribute $210,000 from their own IRA — a combined household protection of up to $420,000. Feature Before SECURE 2.0 After SECURE 2.0 Contribution limit Lesser of $145,000 or $210,000 flat — no 25% of balance percentage cap RMD exclusion Up to $145,000 excluded Up to $210,000 excluded from RMD base from RMD base Couple's combined Up to $290,000 (subject Up to $420,000 (flat maximum to 25% rule) limit per spouse) Impact on 25% rule limited Flat limit removes this small-balance contribution disadvantage holders significantly Latest income start Age 85 (unchanged) Age 85 (unchanged) date
The RMD exclusion creates a cascade of tax benefits that extends beyond the direct income tax savings on the excluded amount. Lower RMDs mean lower adjusted gross income in the years from 73 to 85 (or 75 to 85 for younger cohorts). Lower adjusted gross income can keep income below the thresholds that trigger Income-Related Monthly Adjustment Amount (IRMAA) surcharges on Medicare Part B and Part D premiums. In 2026, single filers with modified adjusted gross income above $109,000 begin paying IRMAA surcharges. A $210,000 QLAC reducing annual RMDs by several thousand dollars could keep a retiree below that threshold for multiple years. The Social Security benefit taxation calculation is also sensitive to total income. Up to 85 percent of Social Security benefits can be subject to federal income tax when combined income exceeds $34,000 for single filers or $44,000 for married filers. Reducing RMD income reduces combined income and can lower the percentage of Social Security benefits subject to tax.
The deferral is the mechanism. The income is the point. A QLAC purchased at age 65 with $210,000 produces very different income depending on when payments start. Income Start Deferral Estimated Annual Estimated Annual Age Period Income (Male, Income (Female, $210,000 premium) $210,000 premium) Age 75 10 years $38,423 $34,979 Age 80 15 years $68,384 $59,259 Age 85 20 years $137,638 $114,114 These figures illustrate the compounding power of deferral. A $210,000 premium deferred twenty years produces an estimated $137,638 per year for a male annuitant — income that continues for life regardless of how many years that turns out to be. The insurer bears all longevity risk beyond that start date. The caveat: these are estimates based on 2026 market conditions. Actual QLAC payout rates depend on the insurer, the interest rate environment at the time of purchase, and the specific contract terms. They should be obtained as actual quotes from licensed insurers, not assumed from illustrations.