CD vs QLAC (2026) - Defer Required Minimum Distributions Legally
For retirees with large IRA balances (typically $500K+), RMDs starting at age 73 (rising to 75 under SECURE 2.0) can push them into higher tax brackets and trigger IRMAA Medicare surcharges. The Qualified Longevity Annuity Contract (QLAC) is the only IRS-sanctioned way to remove some of that money from the RMD calculation.
You can move up to $200,000 of IRA money into a QLAC (2026 limit, indexed annually). That premium is excluded from the year-end IRA balance used to calculate RMDs. The QLAC must begin paying income no later than age 85. From that point forward, the income is taxable - but you've delayed it by up to 12 years.
A CD inside an IRA does nothing for RMD calculation. The CD's balance is fully included in the December 31 IRA balance that drives next year's RMD. CDs are a savings instrument; QLACs are a tax-deferral tool.
CD vs MYGA, after tax
What $100,000 earns in 5 years: CD vs MYGA, after tax
Rates used: CD 5.00%, the top nationally available 5-year CD (Bankrate, October 14, 2026); change it to the rate you are offered. MYGA 5.95%, the best A-rated rate we track as of October 13, 2026: Delaware Life Pinnacle Plus 5-year (AM Best A-, negative outlook, 7/31/2026), $100,000 and up, effective October 6, 2026 (Delaware Life rate sheet).
| CD, interest taxed every year | $121,081 |
|---|---|
| MYGA, tax-deferred, before tax | $133,507 |
| MYGA after paying tax on all the interest at withdrawal | $126,136 |
| Tax deferral alone adds about | $674 |
| MYGA ahead of the CD, after tax | $5,055 |
Assumes 22% federal and 0% state income tax, no withdrawals, rates held for the whole term. MYGA interest is taxed as ordinary income when you withdraw it, not as capital gains. Gains taken before age 59 1/2 can owe a 10% IRS penalty, and cashing out early can cost a surrender charge.
In an IRA both grow tax-deferred, so the edge there is the rate alone. Bank and credit union deposits are FDIC or NCUA insured up to the limits; a MYGA is backed by the issuing insurer's claims-paying ability and your state's guaranty association up to its limits, not the FDIC. General education, not tax, legal or financial advice.
Side-by-side comparison
| Dimension | CD | QLAC |
|---|---|---|
| Counts toward RMD calculation | Yes - full balance included | No - excluded from RMD math |
| Maximum amount | Unlimited | $200,000 per person (2026, indexed) |
| Latest start date for income | RMDs forced at age 73 (75 by 2033) | Income must start by age 85 |
| Income payout rate (age 80 start, age 65 purchase) | ~4.40% interest on principal | ~11-13% lifetime payout on original premium |
| Liquidity | Penalty for early IRA withdrawal | Generally none - QLACs are illiquid by design |
| Death benefit (before income) | Full balance to IRA beneficiary | Optional return of premium rider; otherwise NOTHING |
| Death benefit (after income starts) | Remaining balance | Life-only: nothing. Joint-life: spouse continues. |
| Federal tax | Taxable when withdrawn | Taxable when payments start |
| State tax | Taxable when withdrawn | Taxable when payments start |
| Risk | FDIC to $250K | State guaranty fund + carrier A-rating |
| Best for | IRA money you'll spend before age 73 | High-IRA-balance retirees wanting RMD relief |
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When CDs win
- Your IRA balance is under $500,000. RMD impact at 73 is manageable; QLAC's lockup not worth it.
- You'll spend down your IRA before age 73. No RMD problem to solve.
- You need IRA liquidity. CDs let you take principal at maturity. QLACs lock you up.
- You want to leave the IRA to heirs. CDs preserve the balance; QLAC life-only structure pays $0 if you die before income starts.
- Your spouse needs IRA money as a surviving-spouse beneficiary. CDs go to beneficiaries; life-only QLACs don't.
When QLAC wins
- Your IRA balance is over $1M and RMDs will push you into higher tax brackets at 73. Moving $200K to QLAC reduces RMD-based tax drag for 10+ years.
- You're worried about IRMAA Medicare surcharges. Smaller RMDs at 73 mean lower MAGI and lower Medicare premiums.
- You have family history of longevity. The QLAC's lifetime income kicks in at 80-85 - exactly when other savings might run thin.
- You have a spouse you want to protect. Joint-life QLAC continues income to surviving spouse - lifetime income protection for both lives.
- You have ample non-IRA liquidity. Locking $200K of IRA in a QLAC doesn't create cash-flow problems because you have taxable money for liquidity.
Worked example: $250,000 over the planning horizon
You're 65 with $1.2M in an IRA. At 73, RMDs begin at roughly $44,000/year (using the IRS uniform life table divisor). That income, combined with Social Security and pension, pushes you to the 32% federal bracket and into Tier 2 IRMAA. Two strategies:
Option A: Keep $1.2M in IRA CDs (4.40%).
Year 1 RMD at 73: ~$44,000 forced taxable income. Annual IRMAA surcharge: ~$2,500/year. Plus federal/state tax on the RMD: ~$15,000/year.
Option B: Move $200K to QLAC (age 65, income starting at 80), keep $1M in CDs.
Year 1 RMD at 73: ~$36,700 (calculated on $1M balance). Tax + IRMAA savings: ~$3,500/year compared to Option A. At 80, QLAC starts paying ~$26,000/yr lifetime. Total income at 80 = RMD + QLAC + SS = ample, with longevity protection.
The QLAC saves about $24,500 in RMD-driven taxes between ages 73-80, and then provides $26,000/year of lifetime income starting at 80 vs. depleting the IRA. The trade-off: if you die at 75, the QLAC paid nothing (unless you bought ROP rider).
Tax implications
CDs inside an IRA: distributions are fully taxable as ordinary income. RMDs are forced starting age 73 (75 by 2033 under SECURE 2.0).
QLACs: payments are fully taxable as ordinary income when they start. No exclusion ratio (because there's no after-tax basis in a qualified account). The benefit is timing - you've delayed taxable distributions by up to 12 years (age 73 to age 85) on the QLAC portion.
The 2026 QLAC premium cap is $200,000 per person, indexed annually for inflation. The limit applies across all IRAs and 401(k)s in aggregate. Spouses can each fund their own $200,000 QLAC for combined $400,000 of RMD-deferred IRA money.
Frequently Asked Questions
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Disclosure
This comparison reflects publicly available product information and approximate market yields as of the date stated above. CD, Treasury, bond, annuity, and money market rates change frequently, typically weekly for short-term instruments and monthly for annuities and bonds. Always confirm current values against the most recent issuer disclosure document, FDIC/NCUA insurance status, and the actual contract before purchasing. This article is general information for educational purposes; it is not a personalized recommendation, solicitation, or offer of any specific product. Tax treatment described reflects U.S. federal and state law as of 2026 and is subject to change; consult a qualified tax professional. Hans Goldstein is an independent licensed insurance producer (NPN 20602398, CA Insurance License #4273294) appointed with multiple A-rated carriers; he does not sell CDs, Treasuries, mutual funds, or securities. No compensation has been received from any carrier or institution in connection with the publication of this comparison. FDIC insurance covers deposits up to $250,000 per depositor, per insured bank, per ownership category. State insurance guaranty fund coverage on annuities varies by state and is typically $250,000-$300,000 per owner per carrier. Past performance does not predict future returns.