The IRS has made changes to the Required Minimum Distribution (RMD) formula this year that will help retirees keep more of their retirement money in their retirement accounts.
For the first time in 20 years, the IRS has updated its actuarial tables that dictate how much a person is required to withdraw from his or her retirement accounts starting at age 72. The new tables, which now project longer lifespans, are used to calculate RMDs from individual retirement accounts and most qualified retirement plans.
Exceptions to the RMD requirement are Roth IRAs and, if you are still employed, the retirement plan account at your employer.
The reason that the new RMD formula is good for retirees is because the IRS raised the average life expectancy of us from 82.4 to 84.6. This means that they expect us to spread out our savings over a longer period of time. As a result, RMDs that begin in 2022 will be less than they were under the previous formula, which had been in place since 2002.
With smaller withdrawals required each year, more of our retirement assets can remain in their accounts. Smaller RMDs will lessen our tax liability and could potentially drop us into a lower tax bracket.
Calculating your RMD is relatively easy. First, look up the market value of your retirement account as of Dec. 31 from the previous year. Then, divide that value by the distribution period figure that corresponds with your age on the IRS Uniform Lifetime Table:
Appendix B. Uniform Lifetime Table
| Table III | |||
| (Uniform Lifetime) | |||
| (For Use by: Unmarried Owners, Married Owners Whose Spouses Aren’t More Than 10 Years Younger, and Married Owners Whose Spouses Aren’t the Sole Beneficiaries of Their IRAs) | |||
| Age | Distribution Period | Age | Distribution Period |
| 72 | 27.4 | 97 | 7.8 |
| 73 | 26.5 | 98 | 7.3 |
| 74 | 25.5 | 99 | 6.8 |
| 75 | 24.6 | 100 | 6.4 |
| 76 | 23.7 | 101 | 6.0 |
| 77 | 22.9 | 102 | 5.6 |
| 78 | 22.0 | 103 | 5.2 |
| 79 | 21.1 | 104 | 4.9 |
| 80 | 20.2 | 105 | 4.6 |
| 81 | 19.4 | 106 | 4.3 |
| 82 | 18.5 | 107 | 4.1 |
| 83 | 17.7 | 108 | 3.9 |
| 84 | 16.8 | 109 | 3.7 |
| 85 | 16.0 | 110 | 3.5 |
| 86 | 15.2 | 111 | 3.4 |
| 87 | 14.4 | 112 | 3.3 |
| 88 | 13.7 | 113 | 3.1 |
| 89 | 12.9 | 114 | 3.0 |
| 90 | 12.2 | 115 | 2.9 |
| 91 | 11.5 | 116 | 2.8 |
| 92 | 10.8 | 117 | 2.7 |
| 93 | 10.1 | 118 | 2.5 |
| 94 | 9.5 | 119 | 2.3 |
| 95 | 8.9 | 120 and over | 2.0 |
| 96 | 8.4 |
For example, a 72-year-old retiree with $500,000 in her IRA would divide $500,000 by her distribution period figure, which is 27.4. As a result, she would be required to withdraw at least $18,248 from her IRA in 2022.
Please let me know if you have any questions.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
