The Number of Required Withdrawals From Retirement Plans Could Change as a Result of New IRS Life Expectancy Tables

By Jessa Martin On Jan 25, 2022

As a result, you’ll need to pay particular attention to how your withdrawals may be altered this year as new life expectancy tables are implemented to compute required minimum distributions (RMDs) from individual retirement accounts (IRAs), 401(k)s, and other retirement plans.

In the wake of the COVID-19 pandemic, RMDs were temporarily suspended in 2020, but they were reinstated the following year, along with changes to the eligibility requirements.

The revised life expectancy tables, which will be implemented in 2022, could make things much more confusing.

Mr. Ed Slott, founder of Ed Slott and Co. and certified public accountant, told CNBC that the year will bring “a number of problematic circumstances that will only happen this year.”

According to the Internal Revenue Service’s website, most seniors were required to begin taking withdrawals from their IRA, SIMPLE IRA, SEP IRA, or retirement plan account when they reached the age of seventy-two.

However, as a result of amendments made by the SECURE Act of 2019, if your 70th birthday was on or after July 1, 2019, you will not be required to take withdrawals until you reach the age of 72, as previously stated.

In most cases, withdrawals from Roth IRAs aren’t required until after the owner has passed away.

If you attained the age of seventy-two before 2020, RMDs became effective at that time. However, if you turn or will turn 7012 in 2020 or after, you will not be forced to make the necessary withdrawals until you reach the age of 72.

According to CNBC, the amount you must withdraw from each qualified account each year is normally calculated by dividing the previous year’s end balance of each qualifying account by a “life expectancy factor” as prescribed by the IRS.

Because the new tables from the agency imply that you will live for a longer period of time, it is possible that the amount you need to withdraw may be reduced.

According to Slott, the updated tables “provide you with an additional one to two years of life expectancy.”

The following is an example from CNBC: According to the new uniform life table, a 75-year-old would use the factor 24.6 to calculate their life expectancy. If the account balance is $500,000, dividing the amount by 24.6 results in a required minimum distribution of around $20,325.

A 75-year-factor old’s under the old table was 22.9, or $21,834 for a $500,000 account under the old table.

The following is an important point to remember: During your first year of required minimum distributions, the mandatory withdrawal might be deferred until April 1 of the following year, which means you would have two RMDs in a single year.

Make sure to utilize the correct account balance and life expectancy figures if you postpone your 2021 RMD to take advantage of the rule.

In order to calculate the RMD for 2021, we would use the old life expectancy figures and the account’s balance as of December 31, 2020. The RMD for 2022 will be calculated using the updated tables and the balance at the end of 2021.