For retirees staring down a required minimum distribution that will drag them into a higher tax bracket — and pull their Medicare premiums along with it — SECURE 2.0 quietly reopened a shelter that had been largely ignored for a decade. The Qualified Longevity Annuity Contract, or QLAC, lets money inside a traditional IRA or 401(k) escape the RMD calculation entirely, in exchange for a guaranteed income stream that begins as late as age 85. For 2026, the per-person contribution limit is $210,000, up from the previous ceiling and indexed for inflation in $10,000 increments going forward.
What Changed Under SECURE 2.0
Before 2023, a QLAC could hold no more than the lesser of $145,000 or 25% of a retirement account balance. That percentage cap made the tool nearly useless for the retirees who needed it most — high-balance savers with $2 million or $3 million in tax-deferred accounts staring at six-figure RMDs. SECURE 2.0 removed the 25% test entirely and set a flat dollar limit. Combined with the inflation adjustment, the effective cap has climbed roughly 45% since the original rule was written.
Two spouses can each contribute the full $210,000, meaning a married couple can shelter up to $420,000 from RMD calculations by structuring individual contracts.
How the RMD Reduction Actually Works
Money transferred into a QLAC is removed from the December 31 prior-year balance the IRS uses to calculate required minimum distributions. A 73-year-old with $1.5 million in a traditional IRA who moves $210,000 into a QLAC now calculates RMDs on $1,290,000 instead — shaving roughly $8,000 off the first year's mandatory withdrawal, with the annual savings growing as the account compounds.
Over the 12-year stretch between age 73 and 85, cumulative RMDs avoided on a steadily growing balance can clear $100,000, and on strong-return trajectories can approach $200,000. That is not tax forgiven — it is tax deferred. But deferral has value when it keeps a household out of the next marginal bracket or beneath an IRMAA threshold.
The IRMAA Angle
For retirees whose modified adjusted gross income sits within a few thousand dollars of an IRMAA cliff, the QLAC serves as a bracket-management tool as much as a longevity hedge. Shaving even $8,000 from a first-year RMD can keep Medicare Part B and Part D surcharges one tier lower, saving thousands over the 12-year deferral window. The same reduction can hold provisional income below the 85% Social Security taxation ceiling.
The effective marginal rate avoided during these years often runs closer to 35% than the headline federal bracket suggests, once the IRMAA and Social Security taxation interactions are counted.
The Trade-Off Retirees Have to Weigh
QLAC payments, when they finally begin, are fully taxable as ordinary income. A contract designed to start at age 85 will drop a large annual payment on top of whatever Social Security and remaining RMDs the household is already reporting — potentially pushing that later-life income into higher IRMAA tiers than the deferral originally avoided. The strategy works best when the household expects lower future income, faces a specific bracket-management problem today, or genuinely needs the longevity insurance a guaranteed lifetime payout provides.
The contract is also irrevocable. Money that goes into a QLAC cannot be withdrawn early, cannot be rolled back into an IRA, and does not pass to heirs in the same way a traditional IRA balance would. Return-of-premium and joint-life riders are available but reduce the monthly payout.
Practical Takeaways
- Confirm the 2026 limit of $210,000 per person against IRS Notice 2025-67 before contributing, and coordinate spousal contracts to maximize household coverage.
- Model the RMD reduction across the full deferral window, not just year one — the compounding effect is where the tax savings accumulate.
- Set the income start date deliberately. Age 80 balances deferral with taxable-income smoothing; age 85 maximizes the shelter but concentrates the eventual tax hit.
- Compare quotes from multiple insurers. Payout rates vary meaningfully, and once purchased, the contract is fixed for life.
For retirees whose RMDs are the single largest driver of their taxable income after age 73, the QLAC is no longer the fringe tool it was a decade ago. At $210,000 per person, it is now large enough to move the needle on both the tax bill and the income floor.
Sources: Internal Revenue Service Notice 2025-67, Fidelity, Kiplinger, Financial Planning Association, Thrivent, 24/7 Wall St.