When Tom and Maria Alvarez retired in 2024 they faced a familiar dilemma: multiple account types, looming required minimum distributions (RMDs) and uncertainty about the best way to sequence income, pensions and Social Security. Their solution combined four actions—taking a pension lump sum, rolling into an IRA, staged Roth IRA conversions, and buying a deferred income annuity commonly called a QLAC—to produce a tax‑efficient, predictable income plan. This case study lays out the couple’s situation, actions, and measurable lessons for retirement planning enthusiasts.

Starting point: assets, retirement timing, objectives

Tom (66) and Maria (64) retired from public and private sector jobs in mid‑2024. Their balance sheet at retirement:

  • Pension: Tom had a defined benefit with a lump‑sum option of $280,000; he could alternatively take a modest monthly annuity.
  • 401(k): Combined balance of $420,000 (Tom’s old employer plans and Maria’s current 401k).
  • Traditional IRAs: $160,000 held in rollover IRAs from prior jobs.
  • Taxable brokerage: $110,000 of stocks and bonds earmarked for early‑retirement spending.
  • Social Security: Both were eligible, but planned to claim at age 70 to maximize benefit.

Their objectives were straightforward: secure a reliable baseline income to cover essential expenses, minimize lifetime taxes and Medicare IRMAA exposure, and preserve a mix of tax‑free vs taxable assets for legacy and flexibility.

The strategy they implemented

Working with a fee‑only advisor, Tom and Maria executed a four‑part plan over 5 years (2024–2029):

1) Take the pension lump sum and roll it into an IRA

Tom elected the lump sum rather than the small monthly annuity. The lump was rolled into an IRA, consolidating retirement assets while preserving the option to purchase an annuity later. Rolling the lump sum into an IRA preserved tax deferral but also increased their aggregate IRA balance—something they planned to manage with subsequent steps.

2) Buy a deferred income annuity (QLAC) inside the IRA

Using $120,000 of the rolled IRA funds, they purchased a Qualified Longevity Annuity Contract (QLAC) that begins payouts at age 80. The QLAC serves two purposes: (1) it shifts a portion of IRA assets into a contract excluded from the RMD base until the annuity start date, and (2) it creates a guaranteed longevity income floor beginning later in life, complementing Social Security.

3) Stage Roth IRA conversions in low‑income years

After retirement and before claiming Social Security, Tom and Maria planned a five‑year window (2025–2029) of staged Roth conversions. Each year they converted just enough from traditional IRA to Roth IRA to use the lower tax brackets available in early retirement, while drawing from the taxable brokerage account to cover living expenses. Because Social Security was deferred to age 70, their taxable income stayed lower, making these years ideal for conversions.

4) Use taxable account withdrawals as a bridge

Withdrawals from the taxable brokerage account during the conversion years provided cash flow without enlarging IRA distributions. This preserved their ability to control the tax timing of IRA conversions and minimized short‑term tax surprises.

Why this combination worked for them

  • RMD management: The QLAC removed $120,000 from the IRA RMD base until age 80, materially shrinking required minimum distributions when the RMD age (now 73 under SECURE 2.0) arrived. That lowered immediate taxable RMD income and reduced the chance of being pushed into higher tax brackets.
  • Tax‑efficient Roth accumulation: By converting portions of the IRA to Roth IRA in low‑income years, they paid tax at lower marginal rates and created a tax‑free bucket that will not be subject to future RMDs.
  • Guaranteed longevity income: Delaying Social Security to age 70 and adding the deferred annuity at 80 formed a two‑layer longevity shield—Social Security provides a lifelong base and the QLAC fills the late‑life gap.
  • Flexibility and legacy: The Roth IRAs offer tax‑free growth and flexibility for heirs; taxable account assets funded early spending and reduced the need to sell tax‑sheltered assets in unfavorable markets.

Numbers and outcomes (illustrative)

Concrete numbers help show the effect. Over five conversion years they moved roughly $200,000 from traditional IRA to Roth IRA—an average of $40,000 per year—while paying taxes at lower marginal rates because Social Security and RMDs were deferred. The $120,000 QLAC reduced their IRA RMD base by the same amount until age 80. When they hit age 73, their first RMDs were noticeably lower than if they had left the entire pool untapped and unconverted.

Practical outcome:

  1. First‑year RMD at age 73 was approximately 25–35% smaller than it would have been without the QLAC and conversions (exact percentage depends on account growth and IRS life expectancy factors).
  2. By age 80, the QLAC payments begin, providing a predictable income stream that reduces reliance on IRA withdrawals in late life.
  3. The Roth IRA balance continued to grow tax‑free and can be tapped for tax‑free withdrawals or passed to heirs with more favorable tax treatment than taxable IRAs.

Tax and rule considerations they watched closely

  • SECURE 2.0 RMD changes: The Alvarezes planned conversions and QLAC timing with the current RMD rules in mind (RMD age increased to 73 from 72 beginning in 2023, with further increases scheduled in later years). They confirmed their plan against the exact RMD ages that will apply to their birth years.
  • QLAC limits and rules: They purchased the QLAC inside the IRA and confirmed with their custodian that the contract met QLAC eligibility so it could be excluded from the RMD calculation until payout start.
  • Conversion taxation: Each Roth conversion created taxable income in the year of conversion; the couple targeted amounts that filled lower tax brackets without triggering higher Medicare premiums or significantly increasing tax on Social Security in future years.
  • Required documentation: Rolling the pension lump sum and buying the QLAC required careful trustee‑to‑trustee transfers and timely documentation to avoid taxable mishaps.

Lessons for retirement planning enthusiasts

The Alvarezes’ plan highlights several broadly useful lessons.

  • Think holistically across account types. Coordinating pensions, 401(k)s, IRAs, Roth IRAs, taxable accounts and Social Security gives far more options than treating each account in isolation.
  • Use low‑income windows to convert to Roth. Early retirement years before Social Security and large RMDs can be the best time to move taxable IRAs into Roth IRAs at lower marginal tax rates.
  • QLACs can be a practical RMD management tool. For retirees worried about high RMDs and longevity risk, a deferred annuity inside an IRA can both provide late‑life income and reduce early RMD pressure.
  • Maintain spending flexibility. Keeping a taxable account for bridge spending allows controlled Roth conversions without forcing IRA distributions that would enlarge taxable income.
  • Get the sequence right. The order—lump‑sum roll into IRA, purchase QLAC, staged conversions while using taxable funds for living expenses, delay Social Security—was intentional. Different sequencing would change tax outcomes.

Caveats and when this might not fit

Not every retiree should copy the Alvarezes. Important considerations include:

  • Pension structure: If the monthly annuity is unusually generous, taking the lump sum may not make sense.
  • Health and longevity expectations: QLACs make more sense for couples who expect to live into their 80s and want late‑life income protection.
  • Access needs: Money used to buy a QLAC is illiquid until payments begin; retirees needing flexible access should weigh that trade‑off.
  • Estate goals: While Roths are favorable for heirs, annuities have different estate implications than liquid accounts.

Bottom line

Tom and Maria’s case shows how coordinating a pension lump sum, IRA rollovers, staged Roth conversions and a QLAC can produce a smoother, lower‑tax retirement income path. The plan is not universal, but it illustrates the power of sequencing decisions: where you put retirement dollars, when you take Social Security, and how you time conversions all materially affect RMDs and tax bills down the road. For readers considering similar steps, run the numbers with a fiduciary advisor and pay attention to RMD rules, annuity terms, and the tax impact of conversions in your specific years.