You may need to take a little extra time in 2022 to plan your required minimum distributions (RMDs) from IRAs, 401(k)s, and other qualified retirement plans. Some rules have been changed. Changes affect both the original owners of the accounts and the beneficiaries who inherit them.
The tax law of 2019 changed the starting age for RMDs of account owners. If you turned 70½ in 2019 or earlier, you had a long start date. Your first RMD was to be taken for the year you turned 70½. Anyone who turns 70½ after 2019 takes the first RMD for the year in which he turns 72.
For original owners of accounts, RMDs only apply to traditional IRAs and 401(k)s. Original owners of Roth-type accounts are not required to take RMDs during their lifetime.
Beneficiaries who have inherited all types of retirement accounts will have to take RMDs if they inherited the accounts before 2020. Beneficiaries inheriting retirement accounts after 2019 must distribute the accounts in full within 10 years, but obviously they can take distributions at their own discretion. We’re waiting for IRS rules to clarify that.
Congress suspended RMD for 2020, but the suspension came into force only that year.
Another change is that in 2021 the IRS released new life expectancy tables used to calculate RMDs starting in 2022. Tables have a slightly longer life expectancy than older tables, making the RMD slightly lower under new tables than under older ones. ,
Owners of IRAs and other retirement accounts do not make any adjustments. To calculate your 2022 RMD, simply look up your current age in the new tables for 2022 instead of the old tables. The life expectancy factor for your age is divided into your IRA balance as of December 31, 2021, to arrive at your RMD for 2022.
Beneficiaries who inherited retirement accounts before 2020 and have to take RMDs have a different calculation.
A beneficiary uses the new life expectancy table and goes back to the age at which he or she had the first RMD after inheriting the RMD.
Suppose you took your first RMD in 2019 and were 57 years old. Now it is three years later. You see the life expectancy factor for a 57-year-old man in the new table (that’s 29.8). Then you subtract three from the factor. Your life expectancy factor for 2022 is 26.8. Divide that factor into the account balance as of December 31, 2021, to arrive at your RMD for 2022.
The new terms and life expectancy tables are in the free IRS Publication 590-B, available on the IRS website.
These lower RMDs may be short-lived. The pandemic has reduced life expectancy in the US. The IRS plans to update life expectancy tables every few years. Next tables may have a shorter life expectancy and result in higher RMDs.