In early 2020, the CARES Act dropped the required minimum distribution (RMD) requirement for year 2020. However, if you received a RMD from your retirement account in prior years, you may realize that life expectancy tables are used to calculate your annual RMD amount.
To calculate an RMD, the balance in your retirement account on December 31 of the prior year is divided by the life expectancy factor from the appropriate table. Want to know what your current life expectancy factor is for RMD purposes? Check out the two current worksheets related to IRAs:
How does the calculation work? An example:
If your spouse is only 2 years younger and you are age 75, the current life expectancy factor/distribution period from Table III is 22.9. For an IRA with a value of $400,000 at the end of the prior year, the RMD amount is $17,467 ($400,000 divided by 22.9).
But good news for tax planning… beginning January 1, 2022, the IRS is putting in place new life expectancy tables that in most cases will lengthen the life expectancy factor. For example, under the current tables, the life expectancy factor of a 72-year-old person is 25.6, while under the new tables, that life expectancy rises to 27.4.
So, look forward to a reduced annual RMD distribution in 2022 and including less income in your tax return.
Contact your Henry+Horne tax professional for more details.
Melinda Nelson, CPA