A 73-year-old with $1.5 million in a traditional 401(k) faces a forced withdrawal of roughly $56,600 this year. The IRS Uniform Lifetime Table assigns a distribution period of 26.5 at age 73, meaning the full balance drives a taxable event, whether needed or not. For retirees collecting Social Security and paying Medicare premiums, that forced income can trigger unexpected costs.
One 401(k) mechanism legally shrinks the RMD base for 12 years, locks in guaranteed income at age 85, and does both simultaneously: a Qualified Longevity Annuity Contract, or QLAC.
How the RMD Math Changes With a QLAC
A QLAC is a deferred income annuity purchased inside a traditional IRA or 401(k). The portion allocated to a QLAC is excluded from RMD calculations until the annuity’s income start date, which can be deferred until age 85. Under SECURE 2.0, the prior 25%-of-balance cap was replaced by a flat-dollar limit. As of 2026, the lifetime maximum contribution limit for a QLAC is $210,000 per person. A married couple can shelter up to $420,000 in combined assets.
The math is direct. A 73-year-old with a $1.5 million traditional 401(k) who allocates $210,000 to a QLAC reduces their RMD base to $1.29 million for the following 12 years. At the age-73 distribution period of 26.5, the RMD on $1.5 million comes to roughly $56,600. On $1.29 million, it drops to roughly $48,700. That is approximately $7,900 less in ordinary income each year.
At a 22% marginal rate, that reduction saves around $1,700 annually in federal income tax. Across 12 years, the cumulative tax deferral approaches $20,000 in today’s dollars, not counting the tax-deferred growth on the QLAC premium itself.
Where the Real Leverage Lives: IRMAA and Social Security
The tax savings from a smaller RMD understate the total benefit for retirees near Medicare income thresholds. The 2026 IRMAA first tier begins at $109,000 MAGI for single filers and $218,000 for married filing jointly. Crossing that threshold triggers a monthly Part B surcharge of $81.20 per person, in addition to the standard $202.90 premium. That is $1,148 per person per year in combined Part B and Part D surcharges, applied based on income from two years prior.
A retiree at $105,000 in combined income from Social Security and portfolio withdrawals sits $4,000 below the first IRMAA tier. An unreduced RMD of $56,600 pushes them well past it. A QLAC-reduced RMD of $48,700 keeps them below it. Beyond the $1,700 in income tax savings, avoiding the IRMAA threshold also saves $1,148 in Medicare premiums per person annually until the QLAC activates. For a couple, that is $2,296 per year.
The same dynamic applies to Social Security taxation. Once combined income (adjusted gross income plus half of Social Security benefits) exceeds $34,000 for single filers or $44,000 for joint filers, up to 85% of Social Security benefits become taxable. A smaller RMD keeps more benefits out of the taxable column. The effective marginal rate for a retiree who simultaneously triggers IRMAA and full Social Security taxation can approach 40%, even in a nominal 22% bracket. Reducing the RMD base by $7,900 annually can prevent that cascade.
What Happens at Age 85
The QLAC is a trade: accept lower liquidity today for guaranteed income later and tax deferral in between. At age 85, the QLAC begins paying a fixed monthly income guaranteed for life, providing longevity insurance against outliving assets. With the 10-year Treasury yield near 4.3%, QLAC payout rates are meaningfully higher than in the near-zero-rate environment of the early 2020s. A $210,000 QLAC purchased at 73, with income starting at 85, can generate illustrative monthly income ranging from $2,500 to $3,500, depending on the insurer, gender, and contract terms.
The trade-off that gives the decision real weight: if the retiree dies before the QLAC starts paying, the premium may be forfeited in whole or in part, depending on the contract’s death-benefit provisions. Contracts with a cash refund rider return the unused premium to beneficiaries but reduce the monthly payout. This is an insurance product. The decision hinges on health status and family longevity history.
With CPI-U reaccelerating to 3.3% annually as of March 2026 and showing steady upward momentum, the fixed payment stream carries inflation risk. A guaranteed $3,000 per month at age 85 will have less purchasing power than today. That is a known limitation of the product.
How to Evaluate Whether a QLAC Fits
- Calculate current-year MAGI, including the full RMD, then compare it against the 2026 IRMAA first-tier threshold of $109,000 (single) or $218,000 (joint). If a QLAC allocation keeps income below that line, the Medicare savings alone could offset a meaningful portion of the premium, independent of the income tax benefit.
- Quotes from at least three insurers for a $210,000 QLAC with income starting at age 85 allow for comparison. Requesting the monthly payout with and without a cash refund death benefit rider makes the longevity trade-off visible in dollar terms.
- For retirees whose combined income already exceeds the 85% Social Security taxation threshold, a fee-only advisor can model whether a QLAC, a partial Roth conversion, or a combination produces the lower lifetime tax burden, given the specific balance and withdrawal timeline.
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