Individual Retirement Arrangements (IRAs) and other types of tax-deferred retirement accounts provide a great way for investors to save money for retirement. If you invest in any IRA-based account or a 401(k), 403(b), or 457(b) plan, it is important to remember that you will be required to take a Required Minimum Distribution (RMD) from those accounts once you reach the age of 72 according to the Internal Revenue Service (IRS). The size of the distributions is determined using life expectancy tables developed by the IRS. While the tables have remained unchanged since 2002, the IRS was directed to modernize them thanks to an executive order signed by President Trump in 2018. If you plan on taking an RMD in 2022, you should know that the size of your distribution will be determined by the updated tables. Read on to find out more about RMDs and how they will be affected by these new life expectancy guidelines from the IRS.
What are Required Minimum Distributions?
Since traditional IRA and 401(k) accounts allow investors to grow their nest egg tax-deferred, when an investor reaches the age of 72 an RMD is required to be taken to satisfy their tax obligation to the government. An RMD is a specific amount of money that must be withdrawn each year from any tax-deferred accounts by April 1st in the year after you turn 72. If you miss the deadline for an RMD, the IRS will assess a 50% tax penalty on the amount that was supposed to be withdrawn. Should you take out less than what your RMD was worth, the same 50% penalty will apply to the difference between your RMD amount and the amount you withdrew.
IRS Life Expectancy Tables
Each year, your RMD amounts are calculated using one of three life expectancy tables: Uniform Life, Joint Life and Last Survivor, or Single Life. Because it is up to you to make these calculations on your own, it is important that you know which table to use and that you are using the correct one. The updates made to these tables went into effect January 1st, 2022, and as a result, many people who need to take an RMD may not be aware of the update, or they may have difficulty finding the new tables. You can view the updated tables right now by following the link here.
Who Uses Each Life Expectancy Table?
Depending on your situation and status, you will use one of the following three tables to calculate your RMD:
- Uniform Life Expectancy Table – Most retirement account owners who are 72 and older will use this table to calculate RMDs during their lifetime. The only exceptions are IRA owners whose spouse is more than 10 years younger and is the sole beneficiary of their IRA for the entire year.
- Joint Life and Last Survivor Life Expectancy Table – When your spouse is more than 10 years younger than you and is the sole beneficiary of your retirement account for the entire year, they will use the Joint Life and Last Survivor Life Expectancy table to calculate their RMD.
- Single Life Expectancy Table – If you are the beneficiary of an IRA account, you may use the single life expectancy table to calculate your RMD. This table is especially important for non-spouse beneficiaries who inherited an IRA or retirement account prior to 2020 as they can stretch payments from the account over the course of their lifetime. Non-spouse beneficiaries who inherited an IRA account after 2019 are subjected a new 10-year rule which went into effect in 2020 thanks to the passage of the Secure Act.
How Will the New Life Expectancy Tables Impact Your Retirement Planning?
The new life expectancy tables are intended to reflect longer life expectancies and when compared to the previous tables, the increase in life expectancy will reduce the amount of money required to be withdrawn every year. If you accidentally use the old tables to calculate your RMD in 2022, you will be withdrawing more money than you are legally required to, which would also result in paying more taxes than necessary. It is crucial that you are calculating your RMDs using the correct life expectancy table and by meeting with a retirement phase expert you can rest assured that you’re taking the correct withdrawals from your accounts.
The Crash Proof Retirement® Team’s Advanced IRA Training
We understand that calculating your RMDs can be confusing, and that it is easy to miss important deadlines that could lead to significant tax penalties if you do not have accurate and up to date information. If you need help developing your RMD strategy in retirement, the team of consumer advocates at Crash Proof Retirement® can help you. Each of our retirement phase experts participates in an annual Advanced IRA Study Course to ensure that they stay up to date on all the latest regulations and rule changes related to IRAs and other retirement accounts—including the new life expectancy tables for 2022. Anyone who is approaching their RMD age or who is currently required to take an RMD can benefit from a no-pressure, complimentary financial education from our team of consumer advocates. To learn more about how our team at Crash Proof Retirement® can help you with your required minimum distributions in 2022, call 800-722-9728 or visit https://crashproofretirement.com.