With many other things going on in November, it was easy to miss when the IRS issued new life expectancy tables. This is important because these tables are used to calculate Required Minimum Distributions (RMDs) from IRAs and qualified retirement plans.
The old tables will still be used when determining 2021 RMDs, but as of January 1, 2022, the new tables become effective.
This change has been long overdue. The current life expectancy tables were last updated in 2002. The new tables better reflect the improved life expectancy of individuals. These changes will generally reduce the amounts required to satisfy RMDs, meaning account owners can retain a larger amount in their retirement accounts and defer taxes longer. Coupled with the fact that the RMD age was lifted to 72 in 2020 and no RMDs were required in 2020, there is potential to keep more money sheltered in tax-advantaged accounts.
There are three tables used to determine RMD amounts:
- The Uniform Life Table, which is used by the majority of account owners.
- The Joint and Last Survivor Table, which is used when the account owner’s spouse is the sole beneficiary and is more than 10 years younger than the account owner.
- The Single Life Table, which covers eligible designated beneficiaries. This table will be used by designated beneficiaries including spouses (no more than 10 years younger than the account owner), minor children of the account owner, disabled or chronically ill individuals, or other beneficiaries who are no more than 10 years younger than the account owner.
These changes only affect the amount that is required to be distributed. Account owners and beneficiaries are still allowed to withdraw more than the minimum. Also note that non-eligible designated beneficiaries that inherited an account after January 1, 2020, will be subject to the 10-year rule. See IRS Publication 590-B for additional information.
If you have any questions regarding your IRA or 401(k) account, or any retirement planning questions in general, contact us at Heartland Trust Company. We’re always here to help.