What Is a QLAC and Can It Reduce Your RMDs?

A QLAC is a fixed deferred income annuity purchased with pre-tax retirement money. You pay a premium today, and the insurer promises a set monthly income starting at a future date you choose, as late as the first day of the month after your 85th birthday. While you wait, the premium is excluded from the account balance used to figure your RMDs. When payments start, every dollar is taxed as ordinary income, federally and at Arizona's 2.5% flat rate.

SECURE 2.0 made QLACs more usable. It repealed the old rule that capped QLAC premiums at 25% of your account balance and set a flat dollar limit that is indexed for inflation. That limit was $210,000 for 2025 and stays at $210,000 for 2026 under IRS Notice 2025-67. It is a lifetime limit per person across all your IRAs and plans, so a married couple can each use their own $210,000. SECURE 2.0 also allowed a free-look cancellation period of up to 90 days, confirmed that joint and survivor coverage survives a divorce under a qualified order, and allows a return-of-premium death benefit.

The product rules are strict. A QLAC must be a fixed annuity; variable and indexed annuities do not qualify. It cannot have a cash surrender value, so the money is committed once the free-look ends. It can be bought inside a traditional IRA, 401(k), 403(b) or governmental 457(b), but not inside a Roth IRA, which has no lifetime RMDs anyway. The insurer reports the contract each year on Form 1098-Q.

Now the honest math. On a $2M IRA at age 73, the Uniform Lifetime Table divisor is 26.5, so the first RMD is about $75,500. Moving $210,000 into a QLAC lowers it to about $67,500, a reduction of about $7,900. In the 22% federal bracket plus Arizona's 2.5%, that defers roughly $1,900 of tax a year, and those payments eventually come back as taxable income starting by 85. For a household with $3M to $5M of pre-tax money, the QLAC covers only a small slice of the RMD problem.

A QLAC fits when longevity is the real worry: you are healthy, your family lives long, and you want a floor of income that cannot run out if you reach 95. It can let you spend more confidently from the rest of the portfolio in your 70s, because the late-life tail is insured. It is also useful for a spouse who will likely outlive the other, using joint life payments.

It fits poorly when your health is poor, when you need liquidity, or when your main goal is cutting RMD taxes. For that goal, Roth conversions before RMD age and qualified charitable distributions do far more. A QLAC also has inflation risk: payments are usually fixed in dollars, and at 3% inflation, a payment that starts in 12 years buys roughly 30% less than today. Some contracts offer cost-of-living riders at a lower starting payout.

Treat a QLAC as an insurance purchase. Compare quotes from several highly rated insurers, check the insurer's financial strength, and understand the limits of the Arizona Life and Disability Insurance Guaranty Fund before putting a large premium with one company. Payout rates move with interest rates, so the same premium buys different income in different years.

• Buying a QLAC mainly to cut RMD taxes, when the tax deferral on $210,000 is small compared with Roth conversions and QCDs.
• Using the outdated $200,000 limit or the repealed 25% cap, rather than the $210,000 limit in effect for 2025 and 2026.
• Trying to use an indexed or variable annuity as a QLAC, which does not qualify.
• Putting all $210,000 with a single insurer without checking its ratings or the state guaranty fund limits.
• Ignoring inflation on a fixed payment that starts at 85 and may need to last 10 years or more.
• Choosing a life-only payout without a death benefit, then leaving nothing to heirs after an early death, when a return-of-premium option was available.