The IRS has updated its Required Minimum Distribution (RMD) life expectancy tables. The updated tables take effect for 2022 distributions, with transition rules. This change affects IRA owners and employees with a 401(k) or other account-based plan.
New RMD Tables Under the Final Regulations
The new tables generally reflect longer life expectancies. For example, a 72-year-old IRA owner who applies the old Uniform Lifetime Table calculate RMDs uses a life expectancy of 25.6 years. Applying the new Uniform Lifetime Table, a 72-year-old IRA owner will use a life expectancy of 27.4 years. For someone with a $100,000 balance at the close of the previous year, RMD the amount would be $3,650 rather than $3,906.
How the Tables are Used
RMD for any year is the account balance as of the end of the immediately preceding calendar year divided by a distribution period found in one of these three different life expectancy tables:
- Table I (Single Life Expectancy),
- Table II (Joint Life and Last Survivor Expectancy), and
- Table III (Uniform Lifetime).
Beneficiaries of Dead Account Holders
Table I is used for years after the account holder’s death for designated beneficiaries using their own life expectancy to determine the distribution period. That table is also used for beneficiaries who are not individuals (e.g., estates or charities) using the account holder’s life expectancy if the account holder died on or after the required beginning date.
For designated beneficiaries using their own life expectancy, the first distribution is calculated based on the beneficiary’s age as of the beneficiary’s birthday in the first calendar year immediately following the calendar year of the account holder’s death. After the first distribution year, life expectancy is reduced by one for each subsequent year. However, if the beneficiary is the surviving spouse and the sole designated beneficiary, subsequent distribution years use the spouse’s current age.
Example 1. Mary is a surviving spouse and the sole designated beneficiary who uses her life expectancy to determine her distribution period. Mary has to begin RMDs in 2019. She turns age 69 in 2019. Under Table I, her distribution period for 2019 is 17.8. For 2020, she returns to Table I to find the distribution period for someone who is 70 years old is 17.0. For 2021, when she is 71 years old, she returns to Table I which shows a distribution period of 16.3.
Example 2. Martin is a nonspouse designated beneficiary who uses his life expectancy to determine his distribution period. Martin has to begin RMDs in 2019. Martin turns age 57 in 2019. Under Table I, his distribution period is 27.9. After the first year, Martin’s distribution period is reduced by one for each subsequent year. So, for example, his distribution period for 2020 is 26.9 (27.9 − 1) years, and for 2021 it is 25.9 (27.9 − 2).
Comment: Note that RMDs for 2020 are waived so no actual RMDs are distributed. The waiver does not affect the distribution period calculation for 2020, however. Also, the SECURE Act eliminated the life expectancy rule for most designated beneficiaries starting with beneficiaries of employees or IRA owners who died after 2019.
For a non-designated beneficiary where the account holder dies on or after the required beginning date, the account holder’s life expectancy for Table I is used. The life expectancy of someone the account holder’s age as of the account holder’s birthday in the year of death is used. The applicable period is reduced by one for each subsequent year. This method is also used if it results in a longer distribution period for a designated beneficiary than using the designated beneficiary’s life expectancy.
Still Living (for the Most Part) Account Owners
Table II. This table is for a living individual whose spouse is: (a) more than 10 years younger; and (b) the sole beneficiary. For the first distribution, the age of the account holder and the age of the spouse as of their birthdays in the year the account holder turns age 72 is used. The combined life expectancy is at the intersection of these ages. So, for example, if the initial RMD year is 2021, the owner’s and spouses ages as of their birthdays in 2021 are used. For each subsequent year, their ages as of their birthdays in the subsequent year are used.
Table III. This table is used for living account holders, except for individuals whose spouses are more than ten years younger and are sole beneficiaries. For the first distribution, the account holder’s age as of the account holder’s birthday is used. For each subsequent year, the account holder’s age as of the account holder’s birthday in the subsequent year is used.
Transition to New Tables
The updated life expectancy tables apply for distribution calendar years beginning on or after January 1, 2022. Individuals who re-determine their life expectancy annually (IRA owners or employee plan participants, and their sole surviving spouse beneficiaries while they are alive) start using the new tables for 2022 RMDs.
The transition is a bit more complicated for individuals whose distribution periods are based on an historic life expectancy determined at the initial distribution, and then reduced by one each subsequent year. Their original life expectancy must be “reset” starting with 2022 RMD.
Example 3. Mary from Example 1 is a surviving spouse and the sole designated beneficiary who began RMDs in 2019. She uses the existing Table I for 2021 when she is age 71 which shows a period of 16.3. If her IRA balance at the close of the previous year had been $100,000, her RMD would be $6,135 for 2021. For 2022, she uses the new Table I when she is age 72. The period is 17.2. If her balance remained at $100,000, her RMD for 2022 would be $5,814.
Example 4. Martin from Example 2 is a designated beneficiary who uses his life expectancy for the distribution period. His first RMD was determined under the existing Table I as 27.9. In 2020, his distribution period is 26.9 (27.9 − 1) years, and for 2021 it is 25.9 (27.9 − 2). For 2022, his first distribution against which subsequent years are subtracted is reset using the new Table I. The new period for someone age 57 is 29.8. Accordingly, Martin’s distribution period for 2022 is 26.8 (29.8 – 3). So if Martin had a $100,000 balance for both the 2021 and 2022 RMD years, his RMD amount for 2021 would be $3,861, and for 2022 it would be $3,731.
The updated tables are to be welcomed. It is true that there are other RMD changes for 2020 and 2021 that may seem to dwarf the significance of the updated tables. These include the 2020 RMD waiver, the shift from age 70 1/2 to age 72 for the first RMD year, and the narrowing of kinds of beneficiaries that can use their life expectancies. However, the new tables will apply to all RMD recipients all of the time beginning with 2022 RMDs so they will have a lasting impact.
By James Solheim, J.D.