RMD Tables are changing to keep up with The SECURE Act of 2019. Under The SECURE Act, if you turned age 70 1/2 in 2019, you would've been required to take your first RMD by April 1, 2020. If you turned age 70 1/2 in 2020 or later, you should have taken your first RMD by April 1 of the year after you turned age 72. This rule generally applies to the age of the original owner of a traditional IRA, SIMPLE IRA, SEP IRA, a 401(k), or 403(b). Roth IRAs do not have RMDs.
Since the RMD tables haven't been updated since the early 2000s and people now have longer life expectancies, the tables are due for an update. Here are a few things to note about the new 2022 RMD tables and how they may impact you:
- RMDs are now at a lesser percentage.
- Starting in 2022, RMD amounts will be smaller in order to extend the balance over a longer time period.
- A Smaller RMD means fewer taxes to pay.
- More money remaining in retirement savings accounts means more opportunities for tax-deferred accumulation through reinvesting.
- The new RMD tables help investors to manage their taxable income better.
How will beneficiaries be impacted by the new RMD tables in 2022?
For owner deaths that occurred in 2021 and before, the initial life expectancy for the beneficiary’s appropriate age is determined from the new Single Life RMD table.
Starting in 2022, the beneficiaries of IRAs and nonqualified deferred annuities using the owner's life expectancy to calculate the RMDs from the inherited assets must adjust the ongoing life expectancy to the new Single Life table expectancy table's factors.
However, beneficiaries do not use the life expectancy directly from the new table. Instead, they must determine what their life expectancy from the new Single Life table would have been in their first distribution year and then subtract one for each succeeding year to obtain their 2022 life expectancy factor.
What else should you know about 2021 RMDs and the new 2022 RMD tables?
Investors over age 72 can't use the new RMD tables until 2022 which means that you will need to use the current RMD tables to calculate your 2021 RMD. The confusing result of the new laws and IRS changes is that there are now different RMD rules and tables for 2021 and 2022.
If you are over age 72 now is a great time to meet with your financial professional to ensure you've scheduled your RMD for 2021, and plan for 2022's RMD based on your life expectancy and the new 2022 tables.
Sources: https://static.fmgsuite.com/media/documents/62a03f4e-4470-466d-ab38-c2d1850bfc7d.pdf https://nationwidefinancial.com/media/pdf/NFM-14979AO.pdf https://www.nasdaq.com/articles/required-minimum-distribution-changes-for-2022-2021-11-15 https://www.kiplinger.com/retirement/retirement-plans/required-minimum-distributions-rmds https://www.investmentnews.com/quirks-in-required-minimum-distributions-this-year-203605
Content in this material is for educational and general information only.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by FreshFinance.
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