IRAs play a crucial role in helping millions of Americans save for retirement. But once you retire, traditional IRAs force you to start taking money out once you turn 72. Fail to take out your required minimum distribution (RMD) on time, and you'll face a harsh IRS penalty of 50%.
Most years, taking out your RMD is just a matter of following through with what you did in previous years. However, new life expectancy tables came out for the 2022 tax year. As a result, you'll want to look closely at your IRA distributions for 2022 to make sure that you meet the requirements of the new RMD tables.
Image source: Getty Images.
New vs. old IRA RMD tables
|
Age |
Old Distribution Factor |
New Factor |
Age |
Old Distribution Factor |
New Factor |
|---|---|---|---|---|---|
|
72 |
25.6 |
27.4 |
97 |
7.6 |
7.8 |
|
73 |
24.7 |
26.5 |
98 |
7.1 |
7.3 |
|
74 |
23.8 |
25.5 |
99 |
6.7 |
6.8 |
|
75 |
22.9 |
24.6 |
100 |
6.3 |
6.4 |
|
76 |
22.0 |
23.7 |
101 |
5.9 |
6.0 |
|
77 |
21.2 |
22.9 |
102 |
5.5 |
5.6 |
|
78 |
20.3 |
22.0 |
103 |
5.2 |
5.2 |
|
79 |
19.5 |
21.1 |
104 |
4.9 |
4.9 |
|
80 |
18.7 |
20.2 |
105 |
4.5 |
4.6 |
|
81 |
17.9 |
19.4 |
106 |
4.2 |
4.3 |
|
82 |
17.1 |
18.5 |
107 |
3.9 |
4.1 |
|
83 |
16.3 |
17.7 |
108 |
3.7 |
3.9 |
|
84 |
15.5 |
16.8 |
109 |
3.4 |
3.7 |
|
85 |
14.8 |
16.0 |
110 |
3.1 |
3.5 |
|
86 |
14.1 |
15.2 |
111 |
2.9 |
3.4 |
|
87 |
13.4 |
14.4 |
112 |
2.6 |
3.3 |
|
88 |
12.7 |
13.7 |
113 |
2.4 |
3.1 |
|
89 |
12.0 |
12.9 |
114 |
2.1 |
3.0 |
|
90 |
11.4 |
12.2 |
115 |
1.9 |
2.9 |
|
91 |
10.8 |
11.5 |
116 |
1.9 |
2.8 |
|
92 |
10.2 |
10.8 |
117 |
1.9 |
2.7 |
|
93 |
9.6 |
10.1 |
118 |
1.9 |
2.5 |
|
94 |
9.1 |
9.5 |
119 |
1.9 |
2.3 |
|
95 |
8.6 |
8.9 |
120 and up |
1.9 |
2.0 |
|
96 |
8.1 |
8.4 |
Data source: IRS.
What changed with the IRA RMD tables
As you can see above, the IRS changed the RMD tables to reflect changes in life expectancy since the last modifications a decade ago. The net result was to add close to two years to life expectancies for those in their early 70s, with roughly a year added for those in their mid- to late 80s.
The effect on the amount of distributions results from the way RMDs get calculated. To determine your RMD, you would typically take the total value of your traditional IRA balances as of the end of the previous year and then divide it by the appropriate distribution factor in the table. You would then have until Dec. 31 to take that amount out of your IRA, with a one-time exception applying the first year that you take RMDs that allows you to put off a withdrawal until April 1 of the following year.
An example can make the changes clearer. Say you have traditional IRAs worth $100,000 at the end of 2021. Under the old tables, the distribution factor was 25.6, and so you'd have to take out $100,000 divided by 25.6, or $3,906.25, for your RMD. However, with the new factor of 27.4, the RMD is smaller, at $3,649.64.
Good news for retirees
Being able to withdraw less from your traditional IRA gives you more flexibility. You can always take out more than your RMD for the year, but most withdrawals from traditional IRAs add to your taxable income. Therefore, you need to consider broader tax planning as well as your financial needs when deciding on IRA withdrawals.
Bear in mind that these new RMD tables don't apply to everyone making withdrawals from IRAs. If you're married and your spouse is more than 10 years younger than you are, then you'll use a different set of life expectancy tables to calculate RMDs. In general, the result is that you'll have a smaller RMD than you would if you used the tables above.
Knowing about the changes to the RMD tables can help you keep more of your money in tax-favored accounts longer. That's a nice option to have when you don't want to pay any more in tax than you have to right now.
