The IRS has issued new proposed life expectancy tables to calculate RMDs.
As a reminder a required minimum distribution (RMD) is the amount of money that must be withdrawn from a traditional, SEP, or SIMPLE IRA account by owners and qualified plan participants of retirement age. Participants must begin withdrawing from their retirement accounts by April 1 following the year they reach age 70 1/2.
The new tables take into account longer life expectancy. The current tables stop at age 115+, but the new ones run an extra five years, to 120+. These are the first changes made to the tables since 2002.
What do the new tables mean in practice? When calculating RMDs under the proposed rules, the life expectancy factors would be higher, which means an account owner would take out a smaller amount, leaving more money to grow tax-deferred in the retirement account. For instance, the current factor for someone who is age 71 is 26.5, whereas the proposed rules would set that factor at 28.2. That change means a 71-year-old with a $1 million IRA would be required to take out nearly $2,300 less.
The new tables are not a done deal just yet. The proposed regulations must still go through a few more regulatory steps before they can be finalized. If they stay on track through that process, the new rules would be used to calculate 2021 RMDs.
For now, proceed as usual with the current rules for 2019 and 2020 RMDs.
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