Proposed RMD Rules Would Trim Mandated Distributions for Retirees Ways to get your voice heard on possible new life expectancy tables that would affect your money. November 13, 2019 07:31 am 5 Comments CATEGORY: Retirement Planning. discount pricing. Because it requires more data… and more math! In 2021, using the new updated Uniform Lifetime Table, a 75-year old’s RMD will be 4.07%. Jeffrey Levine, CPA/PFS, CFP®, AIF, CWS®, MSA is the Lead Financial Planning Nerd for Kitces.com, the Chief Planning Officer 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. financial reporting, Global trade & Sofia’s IRA was worth $300,000 as of December 31, 2021. (based on the IRS Single Life Expectancy Table) 21.0: 2016 RMD amount: $4,761.90 ($100,000 / 21.0) 2017 life expectancy factor (revised annually for spouse beneficiaries based on the IRS Single Life Expectancy Table) 20.2: 2017 RMD amount: 12/31/2016 (Fair Market Value / 20.2) Fair market value of Inherited IRA on 12/31/2016: $100,000 RMDs are waived for 2020, and RMDs for 2021 will be calculated under the current tables. The factor would be calcu­lated using the existing life expectancy tables, not the new life expectancy tables effective in 2021. of households headed by an individual 70 or older claimed to calculate distributions from their IRA based on the required minimum amount), would seem to call this data into question. In the end, Clarice’s true, after-tax-net-worth has grown by around $77,000. Join 42,456 fellow financial advisors getting our latest research as it's released, and receive a free copy of The Kitces Report on "Quantifying the Value of Financial Planning Advice"! Even for a person subject to the highest current tax rate of 37%, the annual tax savings would amount to only $777. Thus, for 2019, Jack’s life expectancy factor is 43.6 – 6 = 37.6. The Joint Life and Last Survivor Expectancy Table is also used by (some) retirement account owners to determine lifetime RMDs for their own accounts (as opposed to post-death RMDs from inherited IRAs). However, if you have inherited a Roth IRA, you are subject to RMD rules. Instead, you must take your first RMD for 2021, the year when you turn 72, by April 1, 2022. Most notably, this is the first time the tables have been updated since 2002, despite the fact that life expectancy has increased more than 2% (or 1.6 years) for all Americans, and more than 8% for Americans who have reached the age of 65! An IRA owner or beneficiary who has already received an RMD in 2020 can also repay the distribution to the distributing IRA no later than Aug. 31, 2020, to avoid paying taxes on that distribution. There’s one little-known way to reduce “RMD shock” in 2021 and beyond. In the case of beneficiaries of inherited retirement accounts looking to stretch, the transition process is a bit more confusing, as such beneficiaries cannot simply use the new life expectancy tables going forward at their current age.  The RMD for the owner reduces the account value on which the RMD for the beneficiary is figured. As noted earlier, the Proposed Regulation issued by the IRS on November 7, 2019 revise the three aforementioned life expectancy tables to account for today’s relatively longer life expectancies (compared to the current set of life expectancy tables published in 2002). releases, Your Or Reach Michael Directly: This browser is no longer supported by Microsoft and may have performance, security, or missing functionality issues. Thus the impact of this extension is significantly muted. The preamble also indicates that the IRS will be updating other RMD regulations to reflect the SECURE Act. The required min­i­mum dis­tri­b­u­tion table (rmd table) for those who reach age 70 and the rmd table for ben­e­fi­cia­ries are print­ed below. Location: NC Triangle. *Keep in mind that different rules apply for RRIFs that were set up before the end of 1992. That equates to a required minimum distribution of approximately 3.65% of the prior-year-end balance. There are three life expectancy tables you can use to calculate your RMD based on your situation. You can follow Jeff on Twitter @CPAPlanner and via his personal website. Rather, unless the 5-year rule applies, distributions to beneficiaries must begin by December 31st of the year following the year of death, based on whatever age they happen to be at the time those distributions begin. If Clarice were to take only the RMD amount from her account each year, she would have roughly $821,000 (after factoring in her 6% annual return rate) in her IRA by age 95. Final Rule: Updated Life Expectancy and Distribution Period Tables Used for Purposes of Determining Minimum Required Distributions, 26 CFR Part 1, 85 Fed. Last year, in response to COVID-19, the CARES Act waived required minimum distributions (RMD) … More for Under the current mortality tables, she would use a life expectancy factor of 24.7 to calculate her RMD of $20,243. Proposed Regulations to update the life expectancy and distribution period tables, life expectancy has actually declined slightly in recent years, still meaningfully longer than it was in 2002, someone born in 2002 had an estimated life expectancy of 77.0 years, while in 2017 (the most recent year, at the time of this writing, for which data from the CDC is available) the estimated life expectancy of a newborn child had reached 78.6 years, 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, including several related to Multiple Employer Plans (MEPs, determine the life expectancy factor for calculating RMDs during an account owner’s lifetime, Proposed Regulation issued by the IRS on November 7, 2019, “The Role of IRAs in US Households’ Saving for Retirement, 2018”, disappointment of many individuals when they filed their 2018 returns, 6 Types Of Niches For Financial Advisors To Differentiate Themselves, Financial Advisor’s Guide To Choosing The Best Financial Planning Software (For You). More specifically, Section 2(d) of the Order stated: Updating Life Expectancy and Distribution Period Tables for Purposes of Required Minimum Distribution Rules. The bottom line is that the proposed changes aren’t going to result in any dramatic differences, but for those only taking distributions from their retirement accounts because the IRS says they have to (and not because they need to rely on the distributions for living expenses), there will be a slight reduction in the required minimum distribution amount, ultimately preserving more of the owner’s tax-deferred dollars. 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. Not much, relatively speaking. The final tables are to be used for distribution calendar years beginning on or after January 1, 2022, rather than January 1, 2021. Under the new rules, if you turned 70 on July 1, 2019, or later, you don't have to take an RMD for 2019. They also generally reflect longer life expectancies. Consider that, at the current 3.65% (approximate) first-year-RMD rate for the individual noted above, the RMD on a $1 million IRA would be $36,500. At the end of 2018, her IRA balance was $1 million. Notably, while such individuals may, in fact, wait until (as late as April 1,) 2021 to take that first RMD, that RMD is for 2020. For 2021, taking into account the life expectancy tables under the proposed regulations and applying the transition rule, the applicable distribution period would be 12.0 years (the 14.0 year life expectancy for a 76 year old under the Single Life Table in the proposed regulations, reduced by 2 years).