QLAC defer part of RMD to age 85

Updated: July 28, 2026

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For a 73-year-old with a $500,000 Traditional IRA and a working farm, the first required minimum distribution under Internal Revenue Code §401(a)(9) is about $18,868, cash the farm may not generate on schedule. That mismatch between a forced withdrawal and an illiquid operating asset is exactly the pressure a longevity annuity is built to relieve.

The carve-out’s value comes from how it is computed. The QLAC contract value is excluded from the year-end balance that drives next year’s RMD. Dollars moved under Treasury Regulation §1.401(a)(9)-6, Q&A-17 shrink the divisor’s numerator and lower every distribution between now and the contract’s start age. The trade is liquidity given up today for deferred, often higher, income later.

Before signing any annuity contract a dealer puts in front of you, check our 2026 list of gold IRA dealers OPRS warns against. That list covers operators who pitch QLAC-style annuities outside the IRS rules in ways that trigger a taxable distribution.

What a QLAC actually does to RMDs

A Qualified Longevity Annuity Contract is a deferred income annuity inside an IRA or qualified plan that meets specific IRS conditions. The Treasury Department finalized the QLAC framework in 2014 under Treasury Decision 9673, codified at Treasury Reg §1.401(a)(9)-6, Q&A-17.

One tax benefit defines a compliant QLAC, and it is the most relevant one for an IRA owner approaching age 73. The QLAC contract value is excluded from the prior-year-end account balance used to calculate the annual RMD under IRC §401(a)(9).

The mechanics: the IRA owner directs the custodian to use part of the balance to purchase the QLAC. The dollars are not distributed; they move from a regular IRA position to a QLAC position inside the IRA wrapper. Until annuity payments begin, the IRS treats the QLAC balance as if it were not part of the IRA for RMD purposes. The remaining non-QLAC balance still requires RMDs, computed on that smaller base.

The fit case is an IRA owner who does not need the full RMD as income. The classic example is a 73-year-old farmer with $400,000 to $700,000 in a Traditional IRA, working land worth $1 million or more, modest Schedule F income, and no spouse drawing on the IRA.

The RMD on the full balance pushes the farmer into a higher bracket without producing needed income while the farm still operates. A QLAC parks part of the RMD base for the years after the farm winds down.

The 2024 SECURE 2.0 rule changes

The original 2014 QLAC rule under TD 9673 capped the premium at the lesser of $125,000 (indexed) or 25 percent of the IRA balance. The SECURE 2.0 Act of 2022, signed December 29, 2022, made two structural changes effective for premiums paid on or after the date of enactment.

• Repeal of the 25 percent of account balance limit. SECURE 2.0 Act §202(a) struck the 25 percent rule. A QLAC premium is now limited only by the dollar cap. An IRA owner with a $400,000 balance can place the full premium limit in a QLAC, where under the old rule he could only place $100,000 (25 percent of $400,000).
• Premium cap increased to $200,000 indexed for inflation. SECURE 2.0 Act §202(b) raised the cap from $145,000 (the indexed 2022 figure under the old rule) to $200,000 starting in 2023. The Treasury Department then applies the standard cost-of-living adjustment under IRC §415(d). The IRS announced the 2025 limit at $210,000 in Notice 2024-80. The 2026 indexed limit is announced annually by the IRS in the year-end notice cycle.
• Spousal joint-survivor benefit clarified. SECURE 2.0 also clarified that a QLAC may provide a joint-and-survivor annuity benefit to a spouse who was the IRA owner’s spouse at the time the QLAC was purchased, even if the marriage later ends (relevant for widowers who later remarry, less common for the typical farmer case).

The repeal of the 25 percent rule is the largest practical change. A farmer with a $500,000 IRA can now defer the RMD on roughly 40 percent of the account in one QLAC purchase up to the indexed dollar cap. Under the old rule, only 25 percent ($125,000) was allowed.

The four-step QLAC purchase process inside an IRA

Each of the four steps is a point where a paperwork error converts the intended QLAC into a taxable distribution. The flowchart below shows the steps for an IRA owner age 73 carving $200,000 out of a $500,000 Traditional IRA.

1. Confirm IRA custodian supports QLAC contracts. Not every Traditional IRA custodian allows a QLAC purchase from the IRA. Self-directed IRA custodians and full-service brokerages generally do. Smaller credit-union IRAs sometimes do not. Confirm in writing that the custodian will accept a QLAC contract as an IRA asset and will report the QLAC contract value annually to the IRS on Form 5498 with the QLAC indicator (box 15a/15b). If the custodian will not, transfer the portion of the IRA balance to be QLAC-ed to a custodian that does, via a trustee-to-trustee transfer, before purchasing the QLAC.
2. Pick the QLAC contract and confirm IRS-compliance status. The contract must be issued by a licensed insurance company and must satisfy the requirements of Treasury Reg §1.401(a)(9)-6, Q&A-17, including: the maximum payment start age of 85, no cash surrender value, no commutation feature, a return-of-premium death benefit allowed only under the specific rules of the Q&A, and a contract endorsement labeling the contract as a QLAC. Ask the insurance company for the QLAC endorsement page and verify the maximum-age-85 trigger date matches the date on your application. Confirm against IRS Publication 590-B and FINRA’s investor guidance on income annuities.
3. Direct the IRA custodian to send the premium to the insurance company. The premium dollars must travel by trustee-to-trustee transfer from the IRA custodian directly to the insurance company. The owner never holds the dollars personally. If the dollars hit the owner’s personal bank account at any point in the chain, the transaction is a taxable distribution under IRC §408(d), not a QLAC purchase. The premium cannot exceed the SECURE 2.0 indexed cap ($210,000 for 2025; the 2026 figure is set in IRS year-end notice). The premium also cannot exceed the available IRA balance (subtracting any already-existing QLAC premiums in any of the owner’s IRAs combined).
4. Verify the QLAC indicator on Form 5498 for the year of purchase. The IRA custodian reports the QLAC contract value separately on Form 5498. Check the year-end statement and the Form 5498 (issued by May 31 of the following year) to confirm the QLAC contract appears with the QLAC indicator. The QLAC contract value is then excluded from the year-end IRA account balance the custodian reports on Form 5498 box 5, which is the figure used to compute the next year’s RMD under IRC §401(a)(9). If the QLAC indicator is missing, the custodian is treating the contract as a regular IRA asset and will compute next year’s RMD on the full balance.

Each step matters for the same reason: the IRS only treats the contract as a QLAC if every condition in Treasury Reg §1.401(a)(9)-6, Q&A-17 is met. A custodian misreport on Form 5498, an indirect-transfer paper trail, or an annuity contract without the QLAC endorsement converts the intended QLAC into either a taxable distribution or a non-QLAC IRA annuity.

The non-QLAC annuity does not get the RMD-exclusion benefit, and the taxable distribution costs federal income tax on the full premium amount in the year of the failed purchase.

RMD math on a $500,000 IRA with and without a QLAC

The numbers below use the post-SECURE 2.0 Uniform Lifetime Table from IRS Publication 590-B, Appendix B, Table III. The IRA owner is a 73-year-old single filer with a $500,000 Traditional IRA at the end of the prior year. The QLAC scenario carves out $200,000 (under the 2025 SECURE 2.0 cap) and leaves $300,000 in the regular IRA balance for RMD computation. The chart compares annual RMD dollars at three ages: 73, 78, and 82.

The deferred dollars are not tax-free. When the QLAC starts paying, each payment is fully taxable as ordinary income under IRC §72. The deferral benefit is bracket smoothing: an owner who would have hit the 24 percent bracket on the full RMD can stay in the 22 percent bracket on the smaller base. The trade-off is loss of liquidity on the premium for the deferral window.

QLAC trade-offs: who it fits and who it does not

The IRS rule allows the purchase; the question is whether the trade-off serves the owner’s situation.

QLAC tends to fit an IRA owner age 70 to 75 when four conditions are present. First, a balance large enough that the standard RMD pushes ordinary income into the 24 percent or higher federal bracket. Second, non-IRA assets such as land, savings, or brokerage accounts that cover near-term living and emergency needs without drawing the IRA.

Third, a reasonable expectation of living past 85, based on family longevity, no terminal diagnosis, and decent health. Fourth, a desire to keep the late-life paycheck guaranteed rather than market-dependent.

A widower farmer at age 73 with $500,000 IRA, $1 million of land producing modest Schedule F income, and reasonable health is the canonical fit.

QLAC does not fit in three situations. If your RMD is needed as income, deferral reduces the income you rely on. If you have a terminal diagnosis or a family history of mortality before 85, the benefit is lost if you die before payments start (except for the limited return-of-premium death benefit). If you lack adequate non-IRA liquidity, the premium dollars are gone for the entire deferral window.

An owner without adequate non-IRA liquidity (the premium dollars are gone for the deferral window); an owner with a young surviving spouse whose own income needs override the QLAC structure. Check the 2026 OPRS list of dealers we warn against before any QLAC pitch from an unfamiliar operator: the carve-out is irreversible once the premium is paid.

Five mistakes that turn a QLAC into a taxable event

Mistake 1: indirect transfer through the owner’s personal account. The IRA custodian distributes the premium dollars to the owner; the owner deposits the check with the insurance company within 60 days. This is structurally an IRA distribution followed by a contribution, not a trustee-to-trustee transfer. The distribution is taxable in the year of withdrawal under IRC §408(d).

The insurance company may still issue a valid QLAC contract on the dollars contributed, but the underlying distribution remains a taxable event. The fix is to always run the premium as a custodian-to-insurance-company direct transfer.

Mistake 2: maximum payment start age past 85. Treasury Reg §1.401(a)(9)-6, Q&A-17 caps the QLAC payment start at the first day of the month after the owner turns 85. An application that lists age 86, 87, or “lifetime” as the start trigger fails the Q&A-17 test.

The contract is not a QLAC, the dollars are a non-QLAC IRA annuity, and the IRA owner’s RMD next year is computed on the full account balance including the annuity. The fix is to verify the QLAC endorsement page lists a payment start date no later than age 85.

Mistake 3: premium exceeds the SECURE 2.0 cap. The cap is $210,000 for 2025 (indexed annually). The IRS treats the excess premium as a regular IRA annuity (not a QLAC) for RMD purposes. The owner can request a return of the excess premium under the contract’s return-of-premium provisions (if allowed), but the procedural cleanup is unnecessary if the application was sized correctly. The fix is to confirm the current-year indexed cap with the IRS year-end notice before signing the application.

Mistake 4: aggregating multiple IRA accounts. The SECURE 2.0 cap is a per-individual cap across all of the owner’s IRAs, not per-account. An IRA owner with a $200,000 QLAC at one custodian cannot purchase another $50,000 QLAC at a second custodian in the same year; the second purchase blows the cap. The fix is to track total QLAC premiums across all IRAs in a spreadsheet before any new purchase.

Mistake 5: skipping the Form 5498 verification. The IRA custodian’s Form 5498 for the year of purchase must show the QLAC contract value with the QLAC indicator. If the custodian instead reports the premium amount as a regular IRA asset, the next year’s RMD is computed on the unreduced balance, and the QLAC tax benefit is lost.

The fix is to read the Form 5498 sent by the custodian (typically issued by May 31 of the year after purchase) and confirm the QLAC indicator. If missing, request the custodian to issue a corrected Form 5498-C.

QLAC and land-heavy estates: the Schedule F farmer case

For an IRA owner whose largest asset is land, the QLAC question interacts with farm succession. The IRA names a beneficiary directly; the land typically passes through a will, a revocable trust, or a transfer-on-death deed. A QLAC inside the IRA inherits the IRA beneficiary designation, not the land succession plan. If the owner names adult children as IRA beneficiaries, the QLAC pays out or returns the remaining premium to those beneficiaries under the QLAC death-benefit terms.

The SECURE Act 10-year rule under IRC §401(a)(9)(H) applies to most non-spouse adult-child beneficiaries. A QLAC that has not yet started payments at the owner’s death typically returns the remaining premium under Q&A-17, taxable as ordinary income.

The beneficiary has a 10-year window to distribute the rest of the inherited IRA, unless the beneficiary qualifies as an Eligible Designated Beneficiary. That category includes a surviving spouse, a minor child, a disabled or chronically ill person, or someone less than 10 years younger than the owner.

The land succession plan controls the farm; the IRA beneficiary designation controls the QLAC. Coordinate both before purchase. Our walk-through of farm succession deed and IRA beneficiary form coordination covers the interaction in detail. Our analysis of spousal inherited IRA election options covers the spousal-rollover case.

Frequently asked questions on QLACs and RMD deferral

Can I buy a QLAC inside a Roth IRA?

No. Treasury Reg §1.401(a)(9)-6, Q&A-17 permits QLAC purchases inside Traditional IRAs, SEP-IRAs, SIMPLE-IRAs, and qualified employer plans (401(k), 403(b), 457(b)).

Roth IRAs are excluded because the RMD-exclusion benefit is structurally pointless: Roth IRA owners have no RMDs during the owner’s lifetime under IRC §408A(c)(5). If you want guaranteed lifetime income from a Roth IRA, the standard route is a deferred annuity inside the Roth (not a QLAC, just a regular annuity), which keeps the Roth tax characteristics intact.

What is the latest age I can start QLAC payments?

The maximum payment start age is the first day of the month after the owner turns 85. Treasury Reg §1.401(a)(9)-6, Q&A-17 sets that ceiling explicitly. The contract may specify any earlier start date the owner chooses (age 75, 80, 83). Once payments start, they must continue for the owner’s lifetime under standard annuity rules.

Many QLAC contracts allow the owner to elect the start age later, within a window defined by the contract; the owner cannot push the start date past 85 even with a contractual amendment.

Can I get my QLAC premium back if I change my mind?

No. The IRS rule under Q&A-17 prohibits a QLAC from having a cash surrender value or commutation feature. Once the premium is paid, it sits in the QLAC until payments start. The only money that can come out before then is the return-of-premium death benefit if the contract includes one. In exchange for the RMD-exclusion benefit and guaranteed late-life income, the owner gives up access to the premium for the deferral window.

Does a QLAC affect my Social Security benefits or Medicare premiums?

During the deferral window the QLAC contract value does not appear in Modified Adjusted Gross Income because no annuity payments are being made. The Income-Related Monthly Adjustment Amount (IRMAA) on Medicare Part B and Part D is computed on MAGI two years in arrears, and a QLAC in deferral does not generate MAGI.

Once the QLAC starts paying, each payment is taxable as ordinary income under IRC §72 and can push the owner into a higher IRMAA tier. The bracket-smoothing benefit is real during deferral; the back-end tax bill on the payments is the same as it would have been on the equivalent RMD.

Can a self-directed IRA holding gold purchase a QLAC?

The QLAC purchase is a separate transaction from the gold position. A self-directed IRA holding IRS-approved precious metals under IRC §408(m)(3) can also hold a QLAC contract, provided the custodian supports both asset classes. The custodian must report the QLAC and the precious metals separately on Form 5498.

The RMD-exclusion benefit applies only to the QLAC value; the precious metals balance still counts in the RMD computation. Verify QLAC support with the self-directed custodian in writing before initiating the premium transfer.

Two operational priorities for an IRA owner age 70 to 75 considering a QLAC. First, run the year-of-purchase RMD math with a CPA before signing any application.

The bracket position with and without the carve-out, against the actual non-IRA income picture (Social Security, Schedule F, pension, brokerage), determines whether the bracket-smoothing benefit is meaningful or marginal. A QLAC sized to drop the marginal bracket from 24 percent to 22 percent for fifteen years can save $35,000 or more in cumulative federal tax.

Second, verify the custodian and the insurance company side-by-side: the Form 5498 reporting and the QLAC endorsement page are the two paperwork items that determine whether the IRS treats the contract as a QLAC.

For dealer vetting on the gold-IRA side, if the QLAC is being considered alongside a precious-metals rollover, start with the public record. Check BBB business profiles, FINRA broker checks for any registered representative, and the state insurance commissioner for the annuity company. Augusta Precious Metals is one of the dealers OPRS reviews.

Augusta holds a BBB A+ rating with no complaints on file since 2014. The company has been named Money Magazine’s Best Overall Gold IRA Company every year from 2022 through 2026, and Investopedia’s Most Transparent Gold IRA Company 2022 through 2026. Augusta follows a published Education-First process (Learn, Talk, Decide) with salaried, non-commissioned educators.

Augusta’s industry-reported minimum sits around $50,000 for gold IRA accounts. (OPRS may receive compensation when readers proceed.)

Sources cited

1. 26 U.S.C. §401(a)(9) (Required Distribution Rules)
2. 26 U.S.C. §408 (Individual Retirement Accounts, including QLAC and precious-metals provisions)
3. Treasury Regulation §1.401(a)(9)-6, Q&A-17 (Qualified Longevity Annuity Contracts)
4. Treasury Decision 9673, July 2, 2014 (final QLAC regulations)
5. SECURE 2.0 Act of 2022, Section 202 (Qualifying Longevity Annuity Contracts)
6. IRS Publication 590-B (Distributions from Individual Retirement Arrangements)
7. IRS Notice 2024-80 (2025 retirement plan cost-of-living adjustments, QLAC premium limit)
8. IRS Publication 575 (Pension and Annuity Income)
9. FINRA: Income Annuities, When to Buy and When Not

OPRS is not a financial, tax, or legal advisor. QLAC mechanics, RMD computations, and individual estate facts are specific; consult a CPA, an estate attorney, and a licensed insurance professional before purchasing any QLAC or annuity. Past performance is not a guarantee of future results.