Shortly thereafter, on February 15, 2021, Jamie calls his financial institution to process his 2021 RMD. Joe Retiree, who is 80, a widower and whose IRA was worth $100,000 at the end of last year, would use the Uniform Lifetime Table. However, if the Proposed Regulation are finalized, Jack’s 2021 factor would be reduced. New RMD Rules. To calculate her RMD for this year, Jessica divides $262,000 by the life expectancy factor of 27.0 years. Simply put, beginning with required minimum distributions calculated for the year 2021 and beyond, retirement account owners would pull their factor from the life expectancy tables in the newly Proposed Regulations. In 2021, RMD’s have returned. Because while the proposed updates to the Uniform Lifetime Table do provide some relief from RMDs, that relief is rather nominal, especially when looked at on a year-by-year basis. Joe Retiree, who is 80, a widower and whose IRA was worth $100,000 at the end of last year, would use the Uniform Lifetime Table. The new tables are not effective until 2022. They are as follows: Each of these tables, in their currently used forms, can be found in Appendix B of Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs). However, comparatively few retirement account owners actually qualify to use the table because, in order to do so, an owner must name a spouse who is at least 11 years their junior as their sole beneficiary for the entire year. Hence, starting in 2021, your per year RMD will slightly decrease because the chart is assuming a longer life expectancy. Thus the impact of this extension is significantly muted. Notably, it has been nearly two decades since the current set of life expectancy tables were released by the IRS as part of the Final Regulations for RMDs issued in April 2002 (that put in place the current RMD rules used today). The RMD is $5,000 less in this example, and the tax savings would depend on the taxpayer’s marginal tax-bracket. Before 2020, the RMD age for IRAs was 70½, but when the SECURE Act passed in 2019, they raised the age to 72. That’s because it’s the table that is generally used to determine the life expectancy factor for calculating RMDs during an account owner’s lifetime. The rule making process will be completed this year and new, lower RMD percentages will likely take effect for 2021. The question then becomes, will lowering RMDs for those 20% (who likely already have enough wealth to meet their retirement needs in the first place) have a material impact on their account balances as they age? In November, the IRS released final regulations with new RMD requirements and their 2022 tables. Thus, for 2019, Jack’s life expectancy factor is 43.6 – 6 = 37.6. For example, for a 73-year-old with a $500,000 IRA, under the old calculation they were required to withdraw $20,243 (calculated by dividing $500,000 by the table factor of 24.7). A taxpayer in the 24% marginal tax bracket would pay $1,200 less ($5,000 x 24%). Thus, there’s a decent chance that clients will be asking about the impact the proposed changes may have on their own personal situations, and advisors should be prepared to answer those questions. On the other hand, it is fair to argue that the new table will give a 40-year-old beneficiary an additional two years of tax-deferral for their inherited funds, as the life expectancy factor is, indeed, just over two years longer. Therefore, it would only seem reasonable to assume that those same distributions (amounts already in excess of today’s higher RMD amount) would need to continue in the future, to support the same expenses. But RMDs will be back on the table in 2021. Get popular report "Quantifying the Value of Financial Planning Advice"! The IRS revised the current tables, which have been in effect since 2020, to reflect the fact that Americans are now living longer. On Thursday, November 7, the Service released 122 pages describing proposed regulations which will modify Required Minimum Distributions (RMDs). For example, a single individual who turned 70 ½ on November 7, 2019 calculates their first required minimum distribution (for 2019) by dividing their 2018 year-end account balance by 27.4. The new rules must be understood by those whose provide advice regarding RMDs – including post-mortem RMDs. Thus, Jack’s actual RMD for 2021 (assuming the regulations are finalized) when he turns 48, will require him to use a factor of 45.7 – 8 = 37.7. Even though that RMD is taken in 2021, the RMD is for the year 2020. Example: I will turn 72 in 2021. Required Minimum Distributions Uniform Lifetime Table UPDATE, Nov. 9, 2020: This RMD table is in effect through tax year 2021. Required Minimum Distribution Calculator . Thus, they’d have to distribute roughly 3.44% of their prior-year-end balance. UPDATE, Nov. 9, 2020: This RMD table is in effect through tax year 2021. After several years of speculation and more than a year since the President issued an Executive Order on “Strengthening Retirement Security in America”, the IRS has released its proposal to update the life expectancy tables used to … Your email address will be used solely for Kitces.com updates and NEVER sold or shared with anyone! Surely, there has to be a sizable impact of these updates when looked at in totality, right? Obviously, it depends on the size of the account, but the first-year impact on an IRA as large as even $1 million would be fairly inconsequential. The IRS has recently released its revised Uniform Lifetime Table, which I understand does not take effect until 2022. Because it requires more data… and more math! At age 84, the life expectancy factor pulled from the Uniform Lifetime Table is 15.5, which equates to a required minimum distribution of approximately 6.46% of the prior-year-end balance. Those two years, however, add ‘life’ to the inherited retirement account at the back-end of the stretch. The factor would be calculated using the existing life expectancy tables, not the new life expectancy tables effective in 2021. Somewhere I read that the IRS was going to change the Uniform Lifetime Table such that RMD’s for 2021 and beyond would be a bit lower than required by current table. Nevertheless, like the changes made to the Uniform Life Expectancy Table, the changes made to the Single Life Expectancy Table are unlikely to have a material impact to most beneficiaries. Is that correct? By contrast, the factor for a 40-year-old using the Single Life Expectancy Table in the Proposed Regulations is 45.7. Download a PDF showing the “Current Vs New Uniform Lifetime Table RMD As A Percentage Of Account Balance”, and check out “ IRS Proposes New RMD Life Expectancy Tables To Begin In 2021 ” for more about the IRS’ proposal to update the life expectancy and distribution period tables that both owners of retirement accounts (e.g., IRA, 401 (k), 403 (b) and the Thrift Savings Plan … To that point, according to data provided by the IRS in the Proposed Regulations, “roughly 4.6 million individuals, or 20.5% of all individuals required to take RMDs from an affected retirement plan, will make withdrawals at the minimum required level in 2021”. RECEIVING OUR LATEST RESEARCH AS IT IS RELEASED! RMD = $110,000 / 28.3 Jeffrey Levine, CPA/PFS, CFP®, CWS®, MSA is the Lead Financial Planning Nerd for Kitces.com, the Director of Advanced Planning at Buckingham Wealth Partners (where he works closely with their team to create a seamless client experience that makes it easy to plan and instill confidence as they work towards their most important goals), and the Lead Creator and Content Expert for Savvy IRA Planning®, offered through Horsesmouth. That’s a difference of just $2,100. Under the current life expectancy table (still applies in 2021), Diane’s life expectancy (age 57) is 27.9 years, therefore her 2021 RMD will be $35,842 ($1,000,000/27.9). For example, while in 2002, the average 65-year-old was estimated to have an average life expectancy of 17.9 years, by 2017 that life expectancy had grown to 19.4 years. Again, however, we have to consider the potential impact this change has on an individual’s big picture, and the answer is likely to be “not much”. Quantifying the Value of Financial Planning Advice. Clarice is in the 22% Federal income tax bracket, and like clockwork, she earns a 6% gross rate of return annually for both her IRA and her taxable account investments. The table is very lengthy as it has every combination of ages for 10 spouses 10-years apart in age. Jeff is a recipient of the Standing Ovation award, presented by the AICPA Financial Planning Division, and was named to the 2017 class of 40 Under 40 by InvestmentNews. They now assume we will all live to age 120, an increase from the old table that assumed a life expectancy of 115. Will the IRS’s proposed changes to the Uniform Lifetime Table (and to a lesser extent, the Joint Life and Last Survivor Expectancy Table) create a tax-savings bonanza? Last November, the IRS issued proposed regulations that were supposed to go into effect for 2021. The new tables anticipate that same 70-year old to live 29.1 years. 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