Turning 73? Use a 'QLAC' to Delay Your RMDs and Slash Your Tax Bill Until Age 85
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| Turning 73? |
The biggest headache for retirees with large 401(k)s or IRAs is the Required Minimum Distribution (RMD).
Once you turn 73, the IRS forces you to withdraw money and pay taxes on it, whether you need the cash or not. This extra income can:
- Push you into a higher tax bracket.
- Trigger IRMAA surcharges (doubling your Medicare premiums).
- Make more of your Social Security benefits taxable.
Is there a way to hide some of your IRA money from the RMD calculation? Yes. It is called a QLAC (Qualified Longevity Annuity Contract).
What is a QLAC?
A QLAC is a special type of deferred annuity that you buy inside your retirement account. It is the only annuity that the IRS allows you to exclude from your RMD balance.
How It Works:
- You take a chunk of your IRA money (up to $210,000 lifetime limit as of 2026).
- You use it to buy a QLAC.
- The insurance company holds that money and guarantees to pay you a monthly income starting at a future date you choose—usually age 85.
The Tax Magic: "Now vs. Later"
By moving money into a QLAC, you instantly lower your RMDs for the next 12 years (from age 73 to 85).
💰 The Savings Example (2026 Rules)
Scenario: You are 73 and have a $1,000,000 IRA.
- Without QLAC: Using the IRS factor of 26.5, your first RMD is roughly $37,736. You must pay tax on all of it.
- With QLAC: You move the max $210,000 into a QLAC. Your RMD calculation base drops to $790,000.
- New RMD: Your RMD drops to about $29,811.
Result: You reduced your taxable income by nearly $8,000 this year alone. This could be enough to keep you in a lower tax bracket or avoid an IRMAA penalty.
Why "Longevity" Insurance?
Besides saving taxes, a QLAC protects you from the #1 fear of retirees: Running out of money.
If you live to 95 or 100, your standard portfolio might run dry. But the QLAC kicks in at age 85 and pays you a guaranteed monthly check for the rest of your life, no matter how long you live.
It is essentially "insurance against living too long."
The Downsides (Read Before You Buy)
It is not perfect for everyone:
- Illiquidity: Once you buy a QLAC, that money is locked up until age 85. You cannot touch it for emergencies.
- Inflation Risk: Unless you buy an expensive inflation rider, the fixed payments might buy less in 20 years.
- No Legacy: If you die early (e.g., at 75), you might not get the full value back, although most QLACs offer a "return of premium" death benefit to heirs.
Chief Editor’s Verdict
If you have enough money to live on and hate paying taxes on RMDs you don't need, a QLAC is a brilliant strategic move.
It lowers your taxes today (in your 70s) and creates a guaranteed safety net for tomorrow (in your 80s and 90s). Talk to an advisor about moving up to $210,000 into this tax shelter.
Disclaimer: This article is for informational purposes only and does not constitute professional financial or tax advice. Limits (e.g., $210,000) and RMD rules are subject to change by the IRS. Always consult with a qualified financial advisor or CPA before purchasing an annuity or making significant changes to your retirement plan.
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