How a QLAC changes required minimum distributions: a worked example

A qualified longevity annuity contract lowers your required minimum distributions by one mechanism and only one: the premium you pay for it is left out of the account balance that the RMD formula divides. Everything else about the effect, how big it is, how long it lasts and what it costs you later, follows from that single subtraction.

This worksheet shows the subtraction with a hypothetical IRA, repeats it for a second case where the premium limit bites, and ends with blanks you can fill in with your own figures. The balances, the divisor and the tax rate are invented for tidy arithmetic; the divisor in particular is not from the IRS table, so look up the real one for your age. The product itself is explained in the guide to qualified longevity annuity contracts, and the broader family of contracts in Deferred income annuities (DIAs): longevity insurance explained.

The facts the worksheet depends on

Six rules shape every calculation below.

1. What is being calculated. A required minimum distribution is the amount the IRS requires you to withdraw each year from a traditional IRA or workplace plan once you reach the required age. It equals the account balance as of December 31 of the prior year divided by a life-expectancy divisor from an IRS table.
2. When RMDs start. Under SECURE 2.0, the starting age is 73 for people born 1951 to 1959 and 75 for those born in 1960 or later, per the IRS.
3. What a QLAC is. A QLAC is a deferred income annuity bought with money from a traditional IRA or a workplace plan that allows it. The money in the contract is excluded from the balance used to compute RMDs until payments begin. Roth IRAs are not eligible, because the original owner has no lifetime RMDs on them.
4. The premium limit. The lifetime cap on total QLAC premiums is $210,000 for 2026, unchanged from 2025, according to IRS Notice 2025-67. It is indexed in $10,000 steps, so check the current figure each year.
5. The latest start. Income from the QLAC must begin no later than age 85.
6. No cash. A QLAC has no cash surrender value or lump-sum withdrawal right. It can include a return of premium for a beneficiary if you die, which lowers the payment.

Two practical notes. The excluded amount is the premium you paid, not a growing account value; the contract has no account value. And the RMD formula still applies to everything left in your accounts, so a QLAC reduces your RMDs but does not eliminate them.

The illustrative IRA

Say a hypothetical retiree, Alex, is 74 and has a traditional IRA of $900,000 on December 31 of last year. Alex's RMD age has arrived. Alex is considering putting $150,000 of the IRA into a QLAC. The IRS divisor for Alex's age is something you must look up in the Uniform Lifetime Table; for this example we use an invented round divisor of 24.

Step 1. Prior year-end balance. $900,000.

Step 2. QLAC premium to exclude. $150,000. This is within the $210,000 cap.

Step 3. Balance for the RMD formula. $900,000 − $150,000 = $750,000.

Step 4. Divisor. 24 (illustrative only).

Step 5. RMD with the QLAC. $750,000 ÷ 24 = $31,250.

Step 6. RMD without the QLAC, for comparison. $900,000 ÷ 24 = $37,500.

Step 7. The reduction. $37,500 − $31,250 = $6,250. It is also the QLAC premium divided by the divisor: $150,000 ÷ 24 = $6,250.

That last line is the shortcut worth remembering. Each year, the QLAC lowers the RMD by the premium divided by that year's divisor. The reduction is not a percentage of your IRA; it is a percentage of the premium, and it grows slightly each year as the divisor shrinks with age.

What the reduction is worth

A lower RMD means less forced taxable income. If the retiree's marginal federal income tax rate is, for illustration, 22%, then the tax deferred in that year is $6,250 × 0.22 = $1,375. If the rate is 12%, it is $750. A lower taxable income can also affect how much of Social Security is taxed and what Medicare premiums are, in ways that depend on the retiree's other income, which is a question for a tax professional.

Because the divisor falls with age, the reduction rises a little each year. Using invented round divisors of 24, 23 and 22 for three consecutive years:

Over those three years the income kept out of the RMD comes to $19,590 ($6,250 + $6,522 + $6,818). It is not income avoided. It is income deferred. The money remains in the IRA or is spent from other sources; the point is that the owner is not forced to withdraw and be taxed on it yet.

Keep that distinction in view. A QLAC does not reduce lifetime taxes by a fixed amount. It moves taxable income from the years when RMDs begin to the years when QLAC payments begin. If the owner's tax rate in the later years is the same or higher, the saving can vanish, and if it is lower, the deferral helps.

The payoff: income starting at 85

Suppose Alex bought the QLAC at 74 with a start date at 85, and the contract pays an invented $2,400 a month for life. That is $28,800 a year of taxable ordinary income starting at 85, which is 19.2% of the $150,000 premium ($28,800 ÷ $150,000). The figures are not a quote, and real payments depend on the insurer, the purchase age, sex where state law allows, the payout form and interest rates on the date of purchase.

At 85 the retiree's picture looks different on both sides:

• The IRA is smaller than it would have been, because the $150,000 left it at 74. RMDs on the remainder continue.
• The QLAC adds $28,800 a year of income, taxed as ordinary income, on top of the RMD.
• The tax saved in the early years has been traded for a guaranteed taxable income stream in the later years.

The post on planning a deferred income annuity start date from 65 to 85 shows why the start age drives the size of the check. The QLAC rules cap that at 85, which is why the 85 start is the common choice.

A second case: the premium limit

Say a hypothetical retiree has $1,200,000 in a traditional IRA and wants to put $300,000 into a QLAC. The 2026 limit is $210,000.

1. Qualifying amount. $210,000, the lesser of the premium and the limit.
2. Excess. $300,000 − $210,000 = $90,000 does not qualify. Ask the insurer how an over-limit payment is handled, because the rules include a correction procedure for premiums that exceed the cap.
3. Balance for the RMD. $1,200,000 − $210,000 = $990,000.
4. RMD at an invented divisor of 24. $990,000 ÷ 24 = $41,250, compared with $50,000 without a QLAC ($1,200,000 ÷ 24).
5. Reduction. $50,000 − $41,250 = $8,750, which equals $210,000 ÷ 24.

Note that $8,750 is the most the QLAC could shave from the RMD at that divisor, and it is not the $12,500 that a $300,000 QLAC would have produced. The cap limits both the longevity income and the tax effect. A lifetime cap, as the guide on the qualified longevity annuity contracts explains, applies across all your QLACs, so premiums paid into earlier contracts count.

A third case: when the effect is small

A QLAC does not make sense for everyone. Say a retiree has a $200,000 IRA and puts $50,000 into a QLAC.

• RMD with it: ($200,000 − $50,000) ÷ 24 = $6,250.
• RMD without it: $200,000 ÷ 24 = $8,333.
• Reduction: $2,083, or $50,000 ÷ 24.

At a 12% marginal rate, that is about $250 of tax deferred in the first year. The other terms of the trade are the same: no cash access to $50,000, a fixed payment starting by 85, an insurer's promise to rely on for decades. For a modest IRA the RMD effect is a small reason to buy and the longevity insurance is the real one. If the reason is to get guaranteed income for very old age, a QLAC may fit. If the reason is only to reduce RMDs, run the numbers first, as in this example.

The worksheet, with blanks

Copy these lines and fill in your own figures. Look up the divisor in the IRS Uniform Lifetime Table, or the Joint Life and Last Survivor Expectancy Table if your sole beneficiary is a spouse more than ten years younger, and use the table that applies to you.

If the QLAC is in a workplace plan, make the calculation plan by plan. The RMD rules for workplace plans are applied separately, while traditional IRAs are aggregated for the purpose of taking withdrawals. Ask your plan administrator and a tax professional how your accounts are treated.

Timing and other things to check

The year of purchase. The RMD for a year is based on the prior year-end balance, so a QLAC bought during the year interacts with that year's RMD in a technical way. You must still take the RMD due, and the rules on how a mid-year purchase is treated are worth confirming with the insurer and a tax professional before you act.

Return of premium. If you add a death benefit that returns the premium to a beneficiary, the monthly payment will be lower. Ask for quotes both ways.

Payments are separate from RMDs. When the QLAC begins to pay, the income is taxable, and it is generally in addition to RMDs from your other balances, not a substitute for them. Treat it as new income when you plan the taxes at 85.

What if the contract fails the rules? If a contract does not meet the QLAC requirements, its value stays in the RMD calculation. Confirm in writing that the contract is designed and reported as a QLAC.

Insurer risk. The payments depend on one insurer for 10 or 20 years before they start and for life after. Check its financial strength and your state's guaranty limit.

Alternatives. Some retirees prefer a qualified annuity with an income rider, a plain income annuity bought later, or ordinary investments. The guide on Should you put an annuity in an IRA? and the post Annuity in an IRA: how required distributions and income riders mix describe how those interact with RMDs. The annuity payout calculator gives a rough view of payments for different start ages.

Questions to ask the insurer

Before you commit, put these to the insurer or agent and ask for the answers in writing.

1. Is this contract designed, issued and reported as a QLAC, and will you report the premium to the IRS as required?
2. What is the latest start date the contract allows, and can I choose an earlier one?
3. What does the contract pay at each start age I am considering, with and without a return of premium?
4. If I die before payments start, what does my beneficiary receive, and does it earn interest?
5. Is the payment level, or does it increase each year, and how does that change the starting amount?
6. If I have already bought a QLAC elsewhere, how does the lifetime limit apply, and who tracks it?
7. How do you handle a premium that would exceed the limit?
8. What is the free-look period, and what is refunded?

A planning sequence from purchase to 85

1. Before buying. Add up all traditional IRA and plan balances, the RMDs they will produce and your other taxable income. Fill in the worksheet with the divisor for your current age.
2. At purchase. Confirm the premium, the start age, the payout form and the written QLAC designation.
3. Each RMD year. Recompute the base without the QLAC premium, use the divisor for that year, and take the RMD from the remaining accounts. Keep the insurer's reports with your tax records.
4. A few years before the start date. Estimate the taxable income that will begin, and look at whether other income, such as RMDs from the remaining accounts, plus the new payments, pushes you into a higher bracket.
5. At the start date. Set up withholding or estimated payments on the new income.

When to bring in a professional

The arithmetic above is simple, but the tax picture is not. A fee-only planner or tax professional can model your actual IRA balances, other income, expected tax brackets and Medicare premium thresholds, and confirm the premium limit and the current divisor. The insurer should state in writing that the contract is a QLAC and give you the premium to be reported.

Key takeaways

• A QLAC lowers the RMD by removing its premium from the balance divided by the IRS divisor; the reduction each year is the premium divided by that year's divisor.
• In the example, a $150,000 premium cut a $37,500 RMD to $31,250, a $6,250 reduction, which is deferral and not forgiveness of tax.
• The 2026 premium limit is $210,000 per person across all QLACs, and income must begin by age 85.
• For a modest IRA the RMD effect is small; the main reason to buy a QLAC is longevity income, with the tax deferral as a side effect.
• Fill in the worksheet with your own numbers and have a tax professional check the divisor, limit and timing before you buy.