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RMD Formula Changes
The IRS has good news for retirees: you can now keep more money in your tax-deferred retirement accounts thanks to lower required minimum distributions (RMDs).

Did you hear about the RMD Formula Changes?!! For the first time in two decades, the IRS has updated actuarial tables used to determine Required Minimum Distributions, the amount taxpayers are required to take from their retirement accounts starting at age 72. Beck & Lenox Estate Planning and Elder Law, LLC, provides this Yahoo! Money article “Good News for Retirees: RMD Formula Changes for First Time in Decades.”

The new tables rely on longer lifespans to calculate RMDs from tax deferred accounts, including traditional IRAs, 401(k)s and other similar retirement accounts every year.

One of the key benefits of retirement accounts are the tax advantages they offer. Traditional IRAs and 401(k)s allow savers to defer taxes until funds are withdrawn, letting their investments grow over an extended period of time. However, as with all good things, there are limits. To encourage people to take funds from the accounts (which generate tax revenues), the IRS requires a certain amount of money be taken out after a certain age.

The age requirements have changed over the years. Before the SECURE Act of 2019, withdrawals were required starting at age 70.5. After the SECURE Act, if you reached age 70.5 in 2019, the prior rules applied, and you had to take the first RMD by April 1, 2020. However, if you reached 70.5 in 2020 or later, the first RMD needs to be taken by April 1 in the year after you reach age 72.

Here are the accounts subject to RMDs:

  • Traditional IRAs
  • SEP IRAs
  • SIMPLE IRAs
  • 401(k), retirement plan from private sector employers
  • 403(b), retirement plan for public employees and nonprofits
  • 457(b), retirement plan for some state and local government employees

Profit sharing plans and other defined contribution plans are also included in this category. Roth IRAs are not subject to RMDs.

With the IRS raising the average life expectancy from 82.4 to 84.6, retirees will also need to make their retirement savings account last longer. Therefore, the RMDs starting in 2022 will be less than those from the prior calculation, which has been the same since 2002. Smaller RMDs will also lower tax liabilities and might even put some people into a lower tax bracket.

You can still withdraw as much as you like from an IRA or the accounts listed above. However, be mindful of the resulting tax bill. Expert advice from your financial advisor and your estate planning attorney like the ones at Beck & Lenox is always recommended.

Reference: Yahoo! Money (June 15, 2022) “Good News for Retirees: RMD Formula Changes for First Time in Decades”

 

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