Changes to Your RMDs in 2022
Transcript of Podcast Episode 157
On November 12, 2020, the IRS published final regulations in the Federal Register impacting required minimum distributions (RMDs) from IRAs and qualified retirement plans.The rules are effective for RMDs starting in year 2022 and are needed because of improved mortality experience impacting life expectancy. For instance, a 72-year-old IRA owner would calculate their 2021 RMD using a life expectancy of 25.6 years. Under the new regulations for 2022, however, the IRA owner would use a life expectancy of 27.4 years for his RMD.
The improved life expectancies also impact the distribution period tables established by the IRS and used to calculate RMDs. There are several tables, and each would be used depending upon the situation. For example, the Uniform Lifetime Table is used by all IRA owners unless their sole beneficiary is a spouse who is more than 10 years younger. If the spouse is more than 10 years younger, then the Joint Life Expectancy Table is used.
The Single Life Table is generally used for inherited IRAs with a caveat. At the end of 2019, the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) was signed into law. The SECURE Act included many new provisions affecting IRAs and qualified retirement plans. One of the most significant was eliminating the ability of many IRA beneficiaries, with some exceptions, to “stretch” distributions from inherited IRAs over their life expectancy. Instead, IRA account balances had to be distributed entirely within ten years after the year of the IRA owner’s death.
Using the new tables will result in smaller RMDs. That can have a significant impact because this allows individuals to avoid depleting their accounts if they live longer. It would also be very helpful to those who do not rely upon their IRAs for retirement income or would like to continue deferring the growth of their IRAs for longer periods of time.
Also, remember that prior to the SECURE Act the required beginning date to take RMDs was April 1st of the year following the participant attaining 70 ½ years of age. The SECURE Act changed the age to 72. (In other words, if you were born on or after July 1, 1949, the new age of 72 applies.)
For those already taking RMDs, they will now be able to recalculate their ongoing RMDs for 2022 and beyond, based upon the new tables.
Of course, as with anything tax-related, you should consult with your own tax and legal advisor to determine how this impacts your unique situation.
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