The IRS has adjusted the Life Expectancy Tables used by participants and beneficiaries of retirement plans. These changes impact required minimum distributions (RMDs) beginning in 2022.
The new life expectancy tables will result in a slightly lower percentage that must be taken, compared to the old tables.
For example, a 75-year-old retiree under the old pre-2022 table would be required to distribute 4.37% of their account balance in 2021. A 75-year-old in 2022 will only be required to distribute 4.07%. It’s not a significant difference.
For taxpayers taking RMDs from inherited IRAs, the calculation is different. For the 2022 RMD, the taxpayer must look up the adjusted life expectancy of the account owner they inherited the IRA from, but for the age they (the taxpayer) were in the year following the date of death of the account owner. Then, subtract one for every year between the first year that RMDs are required and the year 2022 to figure out the divisor to use.
Another example may help:
John, age 55, inherited an IRA from his father in 2018. In 2019, he looked at the Single Life Beneficiary Table, and for someone age 56 in 2019, the divisor was 28.7 (3.48%). In 2021 the divisor would be 26.7(3.75%), as John subtracts one from the original 28.7 each year between 2019 and 2021. For 2022, he will need to go to the new table, and for someone age 56 in 2019, the divisor is 30.6 (3.27%). So, for 2022, he would subtract three from 30.6 and use 27.6 (3.62%).
None of the above translates to significant dollar changes for most taxpayers. But it is important to note the changes as we begin the new year.
Here are links to the 2022 Uniform Lifetime Table and the 2022 Single Life Expectancy Table.*
Contact your financial planner to help you determine your required minimum distribution for 2022.
*EKS Associates is not affiliated with Ed Slott & Company, LLC or Ed Slott, CPA. The links provided are for informational purposes only.