New IRS Life Expectancy Tables Could Change the Amount of Required Withdrawals for Retirement Plans

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New life expectancy tables go into effect this year to determine required minimum distributions (RMDs) from IRAs, 401(k)s and other retirement plans, which means you’ll need to pay close attention to how your withdrawals might be affected.

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As GOBankingRates previously reported, RMDs were waived for 2020 because of the COVID-19 pandemic, but they returned last year along with changes to the age requirements.

Things could get even more complicated this year because of the new life expectancy tables.

“There are a couple of tricky situations that will only happen this year,” Ed Slott, a CPA and founder of Ed Slott and Co., told CNBC. As the IRS notes on its website, most seniors had to start taking withdrawals from their IRA, SIMPLE IRA, SEP IRA, or retirement plan account when they reached age 70½. However, because of changes made by the SECURE Act of 2019, if your 70th birthday was July 1, 2019 or later, you don’t have to take withdrawals until you reach age 72. Withdrawals from Roth IRAs aren’t required until after the death of the owner.

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If you reached age 70½ before 2020, then RMDs kicked in at that point. But if you turned or will turn 70½ in 2020 or later, the mandatory withdrawals aren’t required until you reach age 72.

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The amount you must withdraw each year is typically determined by dividing the previous year-end balance of each qualifying account by a “life expectancy factor” as defined by the IRS, CNBC noted. Because the agency’s new tables assume you will live longer, it might reduce the amount you need to withdraw.

The new tables “give you about one to two years more in life expectancy,” Slott said.

CNBC used this example: Under the new uniform life table, a 75-year-old would use 24.6 as their factor. If the account balance is $500,000, then dividing the amount by 24.6 results in an RMD of about $20,325. Under the old table, the factor for a 75-year-old was 22.9, or $21,834 for a $500,000 account.

One important thing to keep in mind: In your first year of RMDs, the required withdrawal can be delayed up until April 1 of the following year, which means you would have two RMDs in a single year. If you delayed your 2021 RMD to take advantage of the rule, make sure you use the right account balances and life expectancy tables. A 2021 RMD would be based on the old life expectancy tables and the account’s balance on Dec. 31, 2020. A 2022 RMD would be based on the new tables and the balance at the end of 2021.

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About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.
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