How Much Is the Required Minimum Distribution from Retirement Accounts?

The IRS has updated the formulas for Required Minimum Distributions (RMDs), the amounts required to be taken annually from 401(k)s, 403(b)s, or traditional Individual Retirement Accounts (IRAs) beginning in 2022.

Key Changes for 2022

According to AARP’s analysis, the updated RMDs will be notably smaller than previous years due to updated life expectancy tables. For example, a 75-year-old single woman with a $100,000 IRA at the end of 2021 will need to withdraw at least $4,065 in 2022, approximately $300 less than under prior guidelines. Many people will be able to take about six or seven percent less in their RMD under the new IRS life expectancy tables.

Important Age and Timeline Updates

The 2019 SECURE Act changed the age when RMD withdrawals become mandatory from 70 and a half to 72. The timeline for taking your first withdrawal depends on when you turned 72:

• If your 72nd birthday occurred before July 1, 2021, you must take an RMD before December 31
• If your 72nd birthday occurs in the second half of 2021, you have until April 1, 2022, using the 2021 IRS tables for calculations

In 2020, RMDs were suspended entirely due to the pandemic.

Special Considerations

Roth IRAs: Roth IRAs do not require any RMDs, though 401(k) Roths do require distributions.

Taking More Than Required: There is no penalty for withdrawing more than your RMD. You simply pay taxes on the additional amount withdrawn.

Strategic Withdrawal Strategies

Early Retirement Planning

If you retire before age 70, before any RMDs are required, withdrawing more from tax-deferred retirement accounts can allow you to delay Social Security benefits. Delaying Social Security increases your monthly payments, which benefits many retirees who expect to live into their 80s and 90s.

Qualified Charitable Distributions (QCD)

Those older than 70 and a half can donate to registered 501(c)(3) charities through a Qualified Charitable Distribution, which counts toward your RMD. The donation amount is exempted from income taxes, though this strategy only works if you take the standard deduction and do not itemize charitable gifts.

Roth Conversion Strategy

Converting traditional IRA assets to a Roth IRA shifts the timing of taxation rather than eliminating it. Converting during a low-income year, or converting only a portion of your traditional IRA, allows money in the Roth account to grow tax-free, with no taxes due on withdrawals.

While the new RMD calculations may result in smaller required withdrawals, individual circumstances vary. Those needing more income should withdraw what they need regardless of IRS rules.

If you have questions about RMD planning and how it fits into your overall estate plan, do not hesitate to contact The Stegall Law Firm for a consultation.