RMD Formula Changes for First Time in 20 Years

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by Wendy Lange
January 21, 2022

Effective January 1, 2022, you can keep more money in your tax-deferred retirement accounts!  The Internal Revenue Service has updated its actuarial tables for the first time since 2002.  What does this mean for you?  More money in your retirement accounts.  At age 72, if you hold tax-deferred retirement accounts such as 401(k), most IRAs (except Roth), 403(b), and 457(b), you must begin taking Required Minimum Distributions (RMDs) from these accounts.  The government allowed you to defer taxes while saving, now at age 72 it is required that you begin taking distributions from these accounts and therefore, time to pay your taxes. 

To calculate an RMD, you must look at the account balance for these accounts as of December 31st of the prior year.  You must then divide that amount by the distribution period figure that corresponds with your current age on the IRA Uniform Lifetime Table.  For example, a 72-year-old has a balance of $100,000 in their IRA as of December 31, 2021.  They would divide that $100,000 by their distribution period figure, which is 27.4.  This means they would be required to withdraw at least $3,649.64 from their IRA in 2022.

The updated table reflects a change in the distribution period figure.  The average life expectancy rose from 82.4 to 84.6.  For example, if this were last year, their distribution period figure would have been 25.6.  That means they would have been required to withdraw $3,906.25 ($100,000/25.6).  This means they have an extra $256.62 that can remain in their account for growth.  Every little bit helps!  Now, imagine if this were a $1 million IRA…

Another advantage of this update is that smaller RMDs will lessen your ordinary income tax liability and could potentially drop you into a lower tax bracket (depending on numerous other income factors)!

Here is the link for the official IRS publication:  https://www.irs.gov/irb/2020-49_IRB#TD-9930.

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