The QLAC Strategy: How to Hide $200,000 from RMDs and Insure Against Living to 100
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Result: You save ~$2,400/year in taxes now AND secure a $55k pension for your 85-year-old self.
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The QLAC Strategy: How to Hide $200,000 from RMDs and Insure Against Living to 100
COACHING POINTS
- The Innovation: The SECURE Act 2.0 boosted the QLAC limit to $200,000 (indexed for inflation). This is the only way to legally remove pre-tax IRA money from the RMD calculation denominator.
- The Mechanics: You transfer $200k from your IRA to a QLAC at age 70. You select “Age 85” as the payout start date. The IRS ignores this $200k for RMD purposes for 15 years.
- The Payoff: At age 85, you receive a massive, guaranteed income stream for life. It is “Longevity Insurance” that protects you from running out of money if you live to 105.
You don’t buy a QLAC for the return on investment (ROI); you buy it for the Return on Life (ROL). By deferring $200,000 until age 85, you lower your taxes today (fewer RMDs) and create a “Super Bond” that pays out exactly when you are most vulnerable to cognitive decline and market crashes.
The “Mortality Credit” Math
Why does a QLAC pay more than a bond ladder? Because the pool of money from those who die early subsidizes those who live long.
- Investment: $200,000 at Age 65.
- Deferral: 20 Years (Start Income at 85).
- Est. Annual Payout: ~$50,000 – $60,000/year for life.
- Implied Yield: If you live to 95, the IRR is ~7-8% (guaranteed). If you live to 100, it spikes to ~10%. No bond offers this security.
What-If Scenario: $2M IRA Balance (Age 73)
Goal: Minimize RMD Taxes and Secure Late-Life Income.
| Strategy | RMD Calculation Base | Year 1 RMD Tax (@32%) | Age 85 Income |
|---|---|---|---|
| Standard IRA | $2,000,000 | ~$23,600 | Uncertain (Market Dependent) |
| With $200k QLAC | $1,800,000 | ~$21,200 ($2.4k Saved) | +$55k/yr Guaranteed |
Visualizing the “Longevity Tail”
*Figure 1: Income Security. The Green line (QLAC) kicks in at age 85, filling the gap as the Red line (Portfolio) potentially depletes.*
Execution Protocol
1
Verify the Limit
The lifetime limit is $200,000 (2024/2025). This is an individual limit, so a married couple can put away $400,000 total if they have separate IRAs.
The lifetime limit is $200,000 (2024/2025). This is an individual limit, so a married couple can put away $400,000 total if they have separate IRAs.
2
Select “Cash Refund” Option
Always choose the “Return of Premium” rider. If you invest $200k and die at 86 having received only $50k in payments, your heirs get the remaining $150k back. This eliminates the fear of “losing it all.”
Always choose the “Return of Premium” rider. If you invest $200k and die at 86 having received only $50k in payments, your heirs get the remaining $150k back. This eliminates the fear of “losing it all.”
3
Use Pre-Tax Funds
Fund the QLAC with Traditional IRA money, not Roth. The whole point is RMD suppression. Using Roth money wastes the tax benefit.
Fund the QLAC with Traditional IRA money, not Roth. The whole point is RMD suppression. Using Roth money wastes the tax benefit.
COACHING DIRECTIVE
- Do This: If you have family longevity (parents lived to 90+), excess IRA funds, and hate RMDs. It is the cheapest way to buy peace of mind for your 90s.
- Avoid This: If you have poor health or a shortened life expectancy. While the cash refund protects principal, you won’t live long enough to reap the mortality credits.
Frequently Asked Questions
What is a Qualified Longevity Annuity Contract (QLAC)?
A QLAC is a specific type of Deferred Income Annuity (DIA) purchased within a standard IRA or 401(k). Its superpower is that the money invested (up to ~$200,000) is removed from your RMD calculation balance, allowing you to defer taxes on that portion until income payments start (typically age 85).
Why wait until age 85 to get paid?
This is ‘Longevity Insurance.’ Just as you buy car insurance for accidents, you buy a QLAC for the ‘risk’ of living too long. By delaying payments, the insurer applies ‘Mortality Credits’ (funds from those who died early) to your account, creating a payout rate much higher than bonds.
What if I die before age 85?
Standard QLACs have a ‘Cash Refund’ or ‘Return of Premium’ rider. If you die before receiving payments (or before receiving your full principal back), 100% of the remaining premiums are paid to your beneficiaries.
Disclaimer: Annuity guarantees are backed by the claims-paying ability of the issuing insurance company. QLAC limits are subject to IRS adjustments. Inflation can erode the purchasing power of fixed payments.
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