RMD Formula Changes for First Time in 20 Years
The IRS has announced positive news for retirees: you can now retain more money in your tax-deferred retirement accounts due to lower required minimum distributions (RMDs).
For the first time in two decades, the IRS has revised the actuarial tables used to calculate Required Minimum Distributions – the mandatory withdrawals from retirement accounts starting at age 72. These updated tables incorporate longer life expectancies when determining RMDs from tax-deferred accounts, including traditional IRAs, 401(k)s, and similar retirement accounts.
Key Benefits of Retirement Accounts
Traditional IRAs and 401(k)s allow savers to defer taxes until withdrawal, enabling investments to grow over extended periods. However, the IRS requires minimum distributions to encourage account holders to begin withdrawals and generate tax revenue.
Age Requirements
Age thresholds have evolved over time. Before the SECURE Act of 2019, withdrawals were required at age 70.5. Following the SECURE Act, those reaching 70.5 in 2019 followed prior rules, taking their first RMD by April 1, 2020. Those reaching 70.5 in 2020 or later must take their first RMD by April 1 in the year after reaching age 72.
Accounts Subject to RMDs
The following accounts require distributions:
- Traditional IRAs
- SEP IRAs
- SIMPLE IRAs
- 401(k) plans
- 403(b) plans
- 457(b) plans
- Profit-sharing and other defined contribution plans
Roth IRAs are exempt from RMD requirements.
The Updated Tables
With the IRS raising average life expectancy from 82.4 to 84.6 years, retirees must stretch retirement savings longer. Beginning in 2022, RMDs will be lower than calculations used since 2002. Smaller distributions reduce tax liabilities and may move some individuals into lower tax brackets.
You may withdraw more than required from these accounts, but be aware of resulting tax consequences.
If you would like to learn how recent RMD changes affect your retirement and estate plan, contact The Stegall Law Firm today to schedule a consultation.
