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The QLAC Strategy: How to Hide $200,000 from RMDs and Insure Against Living to 100

Dec 05, 2025 Code Authority: Team BMT
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The QLAC Strategy: How to Hide $200,000 from RMDs and Insure Against Living to 100

CORE INSIGHTS

  • RMD Shield: A QLAC (Qualified Longevity Annuity Contract) allows you to carve out up to $200,000 from your Traditional IRA. This money is ignored by the IRS when calculating RMDs. SECURE 2.0 Act
  • Longevity Insurance: It solves the “Fear of Running Out.” You pay a lump sum now to receive a guaranteed monthly paycheck for life starting at age 85.
  • Simple & Secure: Unlike complex variable annuities, a QLAC is a straightforward Deferred Income Annuity (DIA) with no market risk. Treas. Reg. § 1.401(a)(9)

Retirees face two opposing risks: dying too soon and living too long. The QLAC is designed to solve the latter. By diverting a portion of your IRA into a QLAC, you reduce your current tax burden (RMDs) while securing a high-yield income stream for late life.

The $200,000 Rule

Understanding the Limits:

  • Lifetime Cap: $200,000 per person (indexed for inflation).
  • Source: Must come from Pre-Tax IRAs or 401(k)s. Roths do not qualify.
  • Deferral Limit: Payments must start by age 85 maximum.

What-If Scenario: The $1 Million IRA

Strategy RMD Base Annual RMD (Age 73)
Without QLAC $1,000,000 ~$38,000
With $200k QLAC $800,000 ~$30,400
Result: Lowers taxable income by ~$7,600/year for 12 years.

Visualizing the Income Bump

⚠️ Chart loading delayed. Please refresh.

*Figure 1: Income Stream Timeline. RMDs (Gray) drop initially, then Total Income (Green) spikes at age 85.*

Strategic Action Steps

1
Check Your RMD Burden
If your projected RMDs will push you into a higher tax bracket or trigger IRMAA, a QLAC is a prime solution.
2
Shop for “Return of Premium”
Always select the “Cash Refund” rider. This ensures that if you die before age 85, your heirs get the unspent principal back.
3
Fund from Traditional IRA
Use pre-tax Traditional IRA funds. Do not use Roth funds. The goal is to defer taxes on the pre-tax money for another 12 years.

The Bottom Line: Who Should Choose What?

  • Choose QLAC: Healthy retirees with longevity history who want to maximize current spending.
  • Avoid QLAC: Retirees with short life expectancy or those who need 100% liquidity.
How much can I put into a QLAC?

As of 2024, the lifetime limit is $200,000 per individual. This amount is indexed for inflation.

How does a QLAC reduce taxes?

Funds in a QLAC are excluded from your IRA balance for RMD calculations, lowering your RMDs between ages 73 and 85.

What happens if I die before payments start?

Most QLACs offer a ‘Return of Premium’ rider. Beneficiaries receive 100% of the premium paid if you die early.

Related Reading (Master Pillars)

🛡️ Retirement Strategy Hub (HQ) 🛡️ RMD Rules & Strategy (#74) 🛡️ Long-Term Care Strategy (#131)
Disclaimer: This content is for informational purposes only. Annuity guarantees depend on the insurer. Consult a professional.
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