QLAC Tax Benefits: RMDs, IRMAA, and Social Security

The tax benefits of a qualified longevity annuity contract, or QLAC, come from one core move: money you put into the contract is subtracted from the retirement account balance the IRS uses to calculate your required minimum distributions. That single exclusion produces three savings — a smaller taxable RMD each year until payments begin (as late as age 85), a lower chance of triggering Medicare income surcharges, and a lower share of your Social Security benefits taxed. The lifetime cap is $210,000 per person as of 2026.¹

The RMD Exclusion That Drives Everything

Traditional retirement accounts are subject to required minimum distributions once you reach a set age. For people born between 1951 and 1959, that age is 73. For those born in 1960 or later, it is 75.² Each year’s RMD is calculated on your total account balance and taxed as ordinary income.

Money placed in a QLAC is carved out of that balance. If your traditional IRA holds $800,000 and $210,000 sits in a QLAC, the IRS treats the account as $590,000 for RMD purposes.³ The exclusion holds every year until annuity payments actually start, which can be pushed as late as the first day of the month after you turn 85.⁴

The result is a decade or more where a meaningful slice of your retirement wealth stays tax-deferred instead of being forced out as taxable income. Because the excluded amount keeps compounding without annual tax drag, the eventual monthly payout is larger than it would have been if you had taken those distributions and reinvested them in a taxable account.

A Lower Bracket in the Deferral Years

Shrinking the RMD does more than delay tax. It can drop you into a lower federal bracket. Retirees who already cover their living costs through Social Security, a pension, or other savings often don’t need their RMD cash, but the IRS forces the withdrawal anyway. Without a QLAC, that mandatory income can push you from the 12% bracket into 22% or 24%. Spread across a dozen years of deferral, the bracket savings compound before you factor in what happens to Medicare premiums and Social Security taxation.

Medicare IRMAA Thresholds

Medicare Part B and Part D premiums carry an Income-Related Monthly Adjustment Amount that turns on above set income levels. For 2026, single filers with modified adjusted gross income at or below $109,000 and joint filers at or below $218,000 pay the standard Part B premium of $202.90 per month with no surcharge. Cross that first threshold and you owe an extra $81.20 per month for Part B plus $14.50 per month for Part D, roughly $1,148 per year per person.⁵

IRMAA uses a two-year lookback, so your 2024 return sets your 2026 premiums. Pulling MAGI down through the QLAC’s RMD exclusion can keep you under a threshold that would otherwise cost you. A married couple who stays in the zero-surcharge tier instead of the first tier saves roughly $2,296 per year. The surcharges climb sharply at higher incomes — a single filer above $205,000 pays an extra $446.30 per month for Part B alone — so the closer you sit to a tier boundary, the more the exclusion is worth.

Taxes on Social Security Benefits

How much of your Social Security is taxed depends on “combined income,” meaning your adjusted gross income plus nontaxable interest plus half of your benefits. For single filers, combined income between $25,000 and $34,000 makes up to 50% of benefits taxable; above $34,000, up to 85% is taxable. For joint filers, the thresholds are $32,000 and $44,000.⁶

Those thresholds have never been indexed for inflation, so most retirees with any real retirement savings hit the 85% tier. Still, the math is worth running. A smaller RMD pulls down the AGI half of the combined-income formula. A single filer hovering near $34,000 could drop from the 85% tier to the 50% tier and save real money for every year the deferral runs.

What You Pay When Payments Start

The deferral eventually ends. Once the annuity’s start date arrives and payments begin, every dollar is taxed as ordinary income, the same as any other traditional retirement plan distribution.⁷ No capital gains treatment applies.

Your rate at that point depends on your total income then. Many people at 85 have less coming in from other sources: a pension may have ended, other accounts may be drawn down, or a spouse’s income may no longer be in the picture. If your bracket at 85 is lower than at 73, the QLAC has shifted income into a cheaper tax year. If the bracket is the same, you still gained more than a decade of additional tax-deferred growth.

How Much Can Go Into a QLAC and From Which Accounts

The lifetime premium cap is $210,000 per person for 2026, and the figure adjusts for inflation over time.¹ SECURE Act 2.0 removed the older cap of 25% of account balance at the end of 2022, leaving only the flat dollar limit.⁸ The limit applies to the person, not to each account, so combined premiums across an IRA and a 401(k) cannot exceed $210,000. A married couple with eligible accounts on both sides can each fund up to the cap.

Eligible source accounts are traditional IRAs, 401(k)s, 403(b)s, and governmental 457(b) plans.³ The account has to be one subject to RMD rules, since the exclusion has nothing to do otherwise. Roth IRAs don’t qualify, and after SECURE Act 2.0 eliminated RMDs on Roth 401(k)s and Roth 403(b)s starting in 2024, there is no RMD problem for Roth money to solve. The contract itself must be a fixed annuity; variable and indexed contracts are ineligible.⁴

The Liquidity Cost Behind the Tax Break

The tax benefits come with a hard trade-off. Federal rules bar a QLAC from carrying any cash surrender value, commutation benefit, or similar withdrawal feature after your required beginning date, with only a 90-day free-look period after purchase during which you can cancel and get your premium back.⁴ Buy a $210,000 QLAC at 68 that starts paying at 85, and that money is locked up for 17 years. You can’t reach it for a medical emergency, long-term care, or a bad year. The tax deferral pays off only if the amount you commit is money you truly won’t need until your mid-80s.

1
Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs
2
Office of the Law Revision Counsel. 26 USC 401
3
Fidelity. QLACs: A Way to Secure Retirement Income Later in Life
4
eCFR. 26 CFR 1.401(a)(9)-6 – Required Minimum Distributions for Defined Benefit Plans and Annuity Contracts
5
CMS. 2026 Medicare Parts A and B Premiums and Deductibles
6
Internal Revenue Service. IRS Reminds Taxpayers Their Social Security Benefits May Be Taxable
7
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
8
Internal Revenue Service. Instructions for Form 1098-Q