SECURE 2.0 removes the 25% cap, allowing $210,000 QLAC purchases to reduce RMDs and tax liabilities for retirees.
A new IRS rule allows retirees to defer up to $200,000 of 401(k) required minimum distributions (RMDs) past age 85 using Qualified Longevity Annuity Contracts (QLACs). Purchasing a $210,000 QLAC can cut annual RMDs by $7,924, saving $1,900 in taxes for those with a $2.32 million balance.
Previously, QLAC purchases were capped at 25% of retirement accounts or $145,000. SECURE 2.0 eliminated this limit, raising the 2026 ceiling to $210,000 per person, indexed for inflation. The change aims to help retirees manage taxable income and avoid Medicare surcharges tied to RMDs.
For a 70-year-old with $2 million in a 401(k), RMDs begin at age 73, with the first withdrawal calculated at $87,547. This can push filers into higher tax brackets and trigger additional Medicare premiums, making QLACs a strategic tool for tax deferral.