What To Know About Updated Required Minimum Distribution Rules

As of January 1, 2022, the updated Uniform Life Table for calculating a required minimum distribution (RMD) has now taken effect. To account for the overall increase in current life expectancy, RMD factors have increased, resulting in lower required distributions from tax-deferred accounts in 2022 relative to last year.

For illustration purposes, we’ll assume a 75-year-old individual has a $500,000 IRA balance. In 2021, their RMD on a $500,000 IRA with a RMD factor of 22.9 equates to 2021 RMD of $21,834. Compared to 2022, with the same $500,000 IRA balance, but updated RMD factor of 24.6, the RMD equates to $20,325, a 7% year-over-year reduction in the distribution. As one can see, the increased 2022 RMD factors result in incrementally lower required distributions. Readers will note that the penalty for not distributing one’s required minimum distribution is 50% on the amount of the distribution not taken. 

Below you will find the updated Uniform Life Table showing the changes to the RMD factor, as well as differences between the new and old RMD tables. We have also provided some frequently asked questions regarding RMDs.

Should you have questions about required minimum distributions, retirement cash flow planning, or other financial planning considerations, please reach out to your trusted Schneider Downs Wealth Management Advisor. If you do not have an advisor, please contact us at [email protected].

What Is a Required Minimum Distribution (RMD)?

A required minimum distribution is the minimum amount that you must withdraw from your tax-deferred retirement accounts each year beginning at a certain age.  Examples of tax-deferred retirement accounts include, but are not limited to, Traditional IRAs, 401(k) accounts, or 403(b) accounts.

When Do You Need to Take RMDs?

In recent years, the rules around the ages for taking RMDs have been adjusted. Initially, the rule for those who were born before July 1st, 1949 is that they begin taking distributions by April 1st of the year after they surpassed 70 ½. For those who were born after June 30th, 1949, a person must begin taking their RMD no later than April 1st of the year after you turn 72.

How Much Do You Need to Withdraw Each Year?

• Your RMD coincides with the IRS Uniform Life Table for 2022, which was recently updated. 
• First, calculate the total amount of money in your tax-deferred accounts on December 31st of the previous year. 
• Then, refer to your age on the IRS Uniform Lifetime Table to find your RMD factor. 
• Next, divide your total tax-deferred account balance by the RMD factor determined by your age on the table. 
• The amount calculated is the amount of money that you will need to withdraw from these accounts in the current year.

What Are the Three Life Expectancy Tables Used for RMDs?

1. Uniform Lifetime Table (ULT): Calculates lifetime RMDs. Starts at age 72 if one turns 70 ½ after 2019.
2. Joint & Last Survivor Table: Used instead of ULT when the spouse is the beneficiary and is more than 10 years younger than the account owner.
3. Single Life Table: Calculates the RMD for eligible beneficiaries. Eligible Beneficiaries Include: surviving spouse; a minor child; a chronically ill individual; a disabled individual; or someone no more than 10 years younger than the account owner. All other individual beneficiaries who inherit a tax-deferred account after 2019 are subject to a 10-year payout rule and do not use this table. IRS regulations include a special “reset” provision for calculating RMDs for non-spouse beneficiaries who inherit before Jan. 1, 2022.

Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice. Registration with the SEC does not imply any level of skill or training.