Older retirement account owners know that, in some cases, they can't leave their money untouched forever. When your retirement savings are in tax-deferred accounts, the Internal Revenue Service eventually demands that you take some money out so it can get its cut of your cash.
These IRS mandated withdrawals are known as required minimum distributions, or RMDs.
These distributions used to be required once the account owner turned age 70½. But effective in 2020, a provision of the Setting Every Community Up for Retirement Enhancement Act of 2019, or SECURE Act, changed the age that triggers RMDs to 72.
The process, however, is the same. When you turn 72, you must begin taking out at least a portion of money from your affected accounts, such as traditional IRAs or 401(k) workplace plans.
The exact distribution amount is based on your age and therefore changes from year to year. It's determined by dividing your tax-deferred accounts' year-end values by an age-based distribution period.
So what are those periods? The IRS has three tables to help you figure out your annual RMD. In November 2020, these tables were updated to reflect the longer lives we Americans now lead, as well as the new later RMD age.
The tables, including the most commonly used Uniform Lifetime Table reproduced below, will take effect in tax year 2022.
|
Uniform Lifetime Table |
||||
|
Retiree |
Distribution Period |
|
Retiree |
Distribution Period |
|
72 |
27.4 |
97 |
7.8 |
|
|
73 |
26.5 |
98 |
7.3 |
|
|
74 |
25.5 |
99 |
6.8 |
|
|
75 |
24.6 |
100 |
6.4 |
|
|
76 |
23.7 |
101 |
6.0 |
|
|
77 |
22.9 |
102 |
5.6 |
|
|
78 |
22.0 |
103 |
5.2 |
|
|
79 |
21.1 |
104 |
4.9 |
|
|
80 |
20.2 |
105 |
4.6 |
|
|
81 |
19.4 |
106 |
4.3 |
|
|
82 |
18.5 |
107 |
4.1 |
|
|
83 |
17.7 |
108 |
3.9 |
|
|
84 |
16.8 |
109 |
3.7 |
|
|
85 |
16.0 |
110 |
3.5 |
|
|
86 |
15.2 |
111 |
3.4 |
|
|
87 |
14.4 |
112 |
3.3 |
|
|
88 |
13.7 |
113 |
3.1 |
|
|
89 |
12.9 |
114 |
3.0 |
|
|
90 |
12.2 |
115 |
2.9 |
|
|
91 |
11.5 |
116 |
2.8 |
|
|
92 |
10.8 |
117 |
2.7 |
|
|
93 |
10.1 |
118 |
2.5 |
|
|
94 |
9.5 |
119 |
2.3 |
|
|
95 |
8.9 |
120 or older |
2.0 |
|
|
96 |
8.4 |
|||
When you do face an RMD, you take each account's value on the prior Dec. 31 (your plan's or plans' annual statement(s) should show this) and divide that/those amount(s) by the IRS' life expectancy
Using the updated table above in 2022, 75-year-old Janet Retiree, whose spouse is her age and who has a traditional IRA worth $100,000 at the end of the year, will have to take at least $4,065 from her account. That's the result of her $100,000 IRA value divided by 24.6 years.
The revision of the table means Janet will be required to take out around $300 less in 2022 using this table than she will have to withdraw in 2021 under the existing table's calculations.
Remember, though, regardless of the amount of the RMD, if Janet (or you or I) don't take it in any required tax year, we'll face a 50 percent tax penalty on the amount she (or we) should have withdrawn.
You can read more about the penalty and other RMD issues in the ol' blog's post 5 FAQs about RMDs.
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