IRS Confirms 2026 QLAC Limit at $210,000, Expanding RMD Deferral for Retirement Accounts

WASHINGTON — The Internal Revenue Service has confirmed the inflation-adjusted limit for Qualified Longevity Annuity Contracts (QLACs) will rise to $210,000 for 2026, providing retirees and business owners a more powerful tool to manage future tax liabilities. The new figure, established under rules from the SECURE 2.0 Act and detailed in IRS Notice 2025-67, solidifies a significant expansion of a strategy that allows individuals to defer required minimum distributions (RMDs) from their 401(k) and traditional IRA accounts.

This change marks a pivotal shift from the previous, more restrictive regulations. Before the SECURE 2.0 Act, an individual could contribute the lesser of 25% of their retirement account balance or a flat dollar amount, which was $145,000 in its final years. The act eliminated the cumbersome 25% of-balance rule, replacing it with a straightforward $200,000 lifetime limit indexed for inflation. The confirmation of the $210,000 figure for 2026 is the latest adjustment, offering greater certainty for financial planning.

A QLAC is a type of deferred income annuity purchased with funds from a qualified retirement plan. The amount invested is excluded from the account balance used by the IRS to calculate RMDs, which must begin at age 73. Payouts from the QLAC must begin by age 85, providing a guaranteed income stream later in life and effectively deferring taxes on that portion of retirement savings for more than a decade.

The financial impact for retirees with substantial account balances is significant. Consider a 70-year-old with a projected $2.32 million in a 401(k) at RMD age. By transferring the maximum $210,000 into a QLAC, the balance subject to RMDs drops to $2.11 million. This single transaction reduces the first-year RMD by approximately $7,924, resulting in an estimated annual federal tax saving of nearly $1,900 for someone in a 24% tax bracket. The deferral can also help higher-income retirees avoid or reduce Medicare premium surcharges, which are based on modified adjusted gross income (MAGI).

The $210,000 limit applies per individual, meaning a married couple can collectively shield up to $420,000 of their retirement assets from RMD calculations until age 85. This makes the strategy particularly relevant for business owners and partners who have accumulated large tax-deferred savings over their careers.

While the primary benefit is tax deferral, QLACs also serve as longevity insurance, mitigating the risk of outliving one's assets. At age 85, the annuity begins making fixed monthly payments that are guaranteed for life. According to industry illustrations, a $210,000 QLAC purchased at age 73 could generate a lifetime monthly income between $2,500 and $3,500 starting at age 85, with the exact amount dependent on interest rates at the time of purchase and other contract terms. The current environment of higher interest rates has made these payout rates more attractive than they were in the low-rate environment of the early 2020s.

However, the strategy involves trade-offs. The funds allocated to a QLAC are no longer invested in the market, creating an opportunity cost if equities experience a strong bull run. Furthermore, the funds are illiquid during the deferral period. To address concerns about mortality risk—dying before payouts begin—most modern QLACs include a "Return of Premium" feature. This ensures that if the annuitant dies before age 85, their designated beneficiaries will receive the initial premium paid, though typically without any interest or investment growth.

While the increased limit offers a compelling tax-deferral opportunity, the decision to purchase a QLAC is complex and highly individualized. In our experience, this is not a default strategy but a specific tool for a specific situation. Business owners, in particular, must weigh the benefits of RMD reduction against their need for liquidity, their overall estate plan, and their expectations for market returns. The opportunity cost of moving $210,000 out of the market for over a decade can be substantial and must be carefully modeled. We work with clients to project not just the immediate RMD savings but also the long-term impact on their total net worth and potential income from other sources. For many, a partial QLAC purchase, rather than the full amount, strikes a better balance. Proper planning for this kind of instrument falls squarely under long-range tax preparation and compliance. C&S Finance Group LLC helps business owners navigate these decisions at csfinancegroup.com.

As the SECURE 2.0 Act's provisions continue to be implemented, retirees and their advisors will be watching for the IRS to announce annual inflation adjustments to the QLAC limit. The simplicity of the new flat-dollar cap, combined with its increasing value, is expected to drive greater consideration of this strategy as a core component of retirement income planning.