By Ian Berger, JD
Welcome to 2022!
One of the big changes in the retirement account world this year will be the calculation of required minimum distributions (RMDs). RMDs for IRA owners and plan participants are calculated using life expectancies from IRS tables. There are three tables:
1. The Uniform Lifetime Table, used to calculate lifetime RMDs in most cases.
2. The Joint Life Expectancy Table, used instead of the Uniform Lifetime Table when a spouse is the sole IRA or plan beneficiary and is more than 10 years younger than the IRA owner or plan participant.
3. The Single Life Expectancy Table, used to calculate post-death RMDs for designated beneficiaries of IRA owners who died before 2020 and for “eligible designated beneficiaries” of owners who died after 2019.
The IRS has issued a new set of tables effective for 2022 RMDs. The new tables reflect the pre-pandemic increase in life expectancies and will result in slightly smaller RMDs.
For 2022 lifetime RMDs, the new Uniform Lifetime Table (and Joint Life Expectancy Table) will be used without any adjustment to account for the fact that pre-2022 RMDs were calculated using the old tables. However, beneficiaries (other than spouses) who inherited before January 1, 2022 and are using the Single Life Expectancy Table will be required to “reset” their 2022 RMD. Here’s how it works:
1. For 2022 RMDs, beneficiaries do not use the new Single Life Expectancy based on their age in 2022.
2. Instead, use the new Single Life Expectancy Table to determine what the life expectancy factor would have been for the very first RMD under the new table. (Assume the new table was in existence back when the first RMD was calculated.)
3. Then, subtract 1 year for each succeeding year to arrive at the 2022 life expectancy factor.
Example: Justin’s father died in 2018 and left him an IRA. For his first required distribution in 2019 (when he turned age 57), Justin used a 27.9-year life expectancy factor under the previous Single Life Expectancy Table. Justin’s 2020 RMD was waived by the CARES Act. His 2021 RMD was calculated using a 25.9-year factor (27.9 – 2). In 2022, Justin turns age 60. Under the new Single Life Expectancy Table, the life expectancy factor for a 60-year-old is 27.1. However, Justin cannot use that factor. Instead, he must reset his 2022 RMD by determining what his life expectancy factor would have been in 2019 (at age 57) under the new table. That factor is 29.8. Justin then subtracts 3 years (for 2020, 2021 and 2022) from that factor to produce a 26.8 life expectancy factor for his 2022 RMD.