Pssst, Retirees: Your Annual RMDs Probably Just Went Down (Yes, Down!)
Are you subject to Required Minimum Distributions (RMDs)? If so, I have some good news for you: For the first time in 20 years, the IRS has lowered the rate at which your RMDs are calculated, including for your own or an inherited IRA, 401(k), or similar retirement account.
Your annual RMDs (starting at age 72 for your own accounts, and at varying ages for inherited ones) are based on an IRS formula that references a set of life-expectancy tables. In November 2021, the IRS updated these tables to reflect the fact that Americans have generally been living longer. For example, a newborn’s life expectancy increased to 84.6 years, up from 82.4 years.
Longer expected life spans often mean longer retirements, so the IRS has lowered RMD rate calculations to help retirees’ money stretch across the extra potential years. Precise figures will vary widely based on individual circumstances, but figure that the new table reduces the distribution amount between 7% and 8% between age 72 and 90, and incrementally more above age 90. And, since the IRS doesn’t update its life expectancy tables very often, we can probably expect to benefit from the lower RMDs for some time to come.
There’s one thing that worries me about this news: Most people don’t know about it. Apparently, providing some modest relief to struggling retirees isn’t sensational enough to hit the popular financial press. So far, I’ve only seen it covered in financial trade publications, and last I checked, even most of the IRS’s own online tables do not yet reflect the new numbers.
What if you accidentally use the old RMD figures? It won’t get you into any sort of trouble with the IRS. And if you need to withdraw the money for living expenses anyway, that’s fine too. But if you’re taking money out strictly to meet your RMD obligations, you usually don’t want to take any more than you must, as it is taxable.
Do seek assistance as you proceed. Calculating RMDs can be tricky, and subject to severe penalties if you do it wrong. That said, be sure your tax planner is using the updated tables for 2022 and future years’ calculations. Because all else being equal, less is more when it comes to RMDs.
John A. Frisch, CPA/PFS, CFP®, AIF®, PPC™ founded Alliant Wealth Advisors in 1995 and has over 30 years of experience as a financial professional. In his free time, he’s an avid long-distance runner, a sport that requires discipline, patience, and vision. John applies these same skills to his professional pursuits: He helps families and retirement plan sponsors adopt a patient, disciplined approach to overcoming financial challenges and reaching their distant goals along a clear path. Learn more at www.alliantwealth.com.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
