Written by: Elissa Wurf, PhD, CFP®, CPA
New tables for calculating the Required Minimum Distributions (RMDs) from Traditional, SEP, and SIMPLE IRAs as well as from 401(k)s and 403(b)s went into effect on January 1, 2022. The last time these “life expectancy” tables were revised was 20 years ago, in 2002! In the new tables, expected life spans have increased — which will have the effect of decreasing required distribution amounts when compared to the tables in effect from 2002-2021.
RMDs for Non-Inherited IRA Accounts
For IRA accounts that were started by the account owner (i.e., non-inherited accounts), the new Uniform Life Tables add, on average, about 2 years to expected longevity. Owners of traditional IRAs will find their RMDs already calculated for them in their online account information. A member of the Agili team can find this information for you if you do not know where to look.
RMDs for Inherited IRA Accounts
If you are the current owner of an inherited (“beneficiary”) IRA, the rules vary depending on whether you inherited the account before or after January 1, 2020.
If you inherited an IRA after January 1, 2020 and are not the original account owner’s spouse, a minor child, a disabled or chronically ill beneficiary, or a beneficiary less than 10 years younger than the original account owner (all “exceptions” to the new rule), the new rules are simple: There is NO annual RMD requirement, but you must have taken all of the money from the account by December 31st of the year that is ten years after the year of the benefactor/decedent’s death. For example, if the decedent died during 2020, full withdrawal of the account balance must occur by 12/31/2030.
If one of the exceptions applies to you, your Financial Strategist can let you know your RMD amount, if any.
If you inherited an IRA before January 1, 2020, you continue to have a Required Minimum Distribution that is calculated using the “Single Life Table” (as opposed to the “Uniform Life Table” that is used for non-inherited accounts). Importantly, you will only use this table once and you will need to know the year that the original account owner died. You will use your age at the end of the year after the decedent died to find your updated starting divisor, and you will then “subtract 1” for every year since the decedent’s death.
For example, if the original account owner passed away in 2011, then the RMD would have been calculated based on the beneficiary’s life expectancy starting in 2012. If you turned 47 in 2012, then your starting divisor for the year 2012 was 37.0, but, based on the new tables, is now updated to 39.0. 2022 is ten years since 2012, so the divisor that the beneficiary would use in 2022 is 29.
Importantly, because these calculations are more complicated, you will not find them in your online account profile: Rather, over the course of this year, your Financial Strategist will let you know the 2022 required amount.
At this time, the IRS has not yet published the updated RMD tables, Publication 590-B (2021).
For other 2022 tax news, see our recent blog post, Tax News for Early 2022.