[Updated on January 18, 2023 after SECURE Act 2.0 passed at the end of 2022.]
Under the SECURE Act 2.0 passed in 2022, retirement account owners aged 73 and above are required to withdraw a minimum amount from their pre-tax retirement accounts each year. Most people who inherited retirement accounts are also required to withdraw a minimum amount from those inherited accounts. This makes sure taxes aren’t deferred forever. It’s called the Required Minimum Distribution (RMD). The IRS introduced updated life expectancy tables effective January 1, 2022. These updated tables are still in effect in 2023 and beyond.
You must take the RMD when you’re a participant of an employer-sponsored retirement plan — including both Traditional and Roth 401k/403b accounts — unless you’re still working for that employer. All Traditional IRA owners must also take the RMD. Your own Roth IRA doesn’t require any RMD but you must still take RMD from an inherited Roth IRA.
If you inherited a retirement account as the surviving spouse, you have the option to roll it over into your own IRA. This will usually either postpone or reduce the RMD you must take.
Your first RMD is due on April 1 of the following year when you’re required to take the RMD. Your subsequent RMDs are due on December 31 of each year. If you wait until the following year to take your first RMD, you must take two RMDs in that same calendar year. If you make Qualified Charitable Distributions (QCD) from your IRA, it counts toward the RMD.
The required amount is calculated by dividing the retirement account balance as of December 31 of the previous year by a life expectancy factor. The required amount as a percentage of the account balance goes up with age using a reduced life expectancy factor for each subsequent year.
New RMD Tables Effective January 1, 2022
Back in 2018, President Trump signed an executive order directing the IRS to study the life expectancy tables used to determine RMDs and see whether they should be updated to reflect longevity improvements over the years. The IRS did that and published a new set of RMD tables for years starting on or after January 1, 2022. These new tables will lower RMDs slightly for most ages.
The IRS has updated its Publication 590-B to show the new tables. When you take the required minimum distributions, you should use the new tables to see how much you must take from your retirement accounts to comply with the new regulations.
The IRS first published the new tables in the Federal Register in November 2020. The Federal Register is the place for official records of the federal government. It’s like the books in the county recorder’s office where all the land deeds are recorded. I reproduced the tables here with links to the official source in the Federal Register.
Table I – Single Life Expectancy for Inherited IRAs
Use the Single Life Table when you’re a beneficiary of an inherited retirement account. This includes inherited employer-sponsored retirement plans and inherited IRAs. Please scroll down past the table for a one-time reset procedure.
Don’t use this table when you’re taking the RMD from your own IRA.
When you’re taking RMDs from your own accounts, you look up your age each year in the applicable table and use the associated factor to calculate your RMD. It works differently when you’re taking RMDs from an inherited account.
When you take the RMD from an inherited account in the first year, you look up the factor in the Single Life Table. For the second year and beyond, you don’t go back to the table again. You remember the factor used in the previous year and you reduce it by 1.
Now, if you already started taking RMDs from an inherited account and the tables changed, the IRS allows you a one-time reset. You look up the factor in the new Single Life Table for the year when you first started taking RMD from the inherited account. Then you reduce that factor by the number of years since then. This makes it as if the new tables were in effect back when you started. After this one-time reset, you continue to reduce the factor by 1 in each subsequent year.
Table II – Joint Life and Last Survivor Life Expectancy
Use the Joint and Last Survivor Table when your spouse is more than 10 years younger and is the sole beneficiary of your retirement account. You use both your age and your spouse’s age to look up the factor to use in the RMD calculation.
The Joint and Last Survivor table is too large to reproduce here. Please use the link to the Federal Register in the previous paragraph or look it up in IRS Publication 590-B (pages 50-64).
Table III – Uniform Lifetime Table for Your Own IRAs
The Uniform Life Table is the most commonly used table. Use this table to take RMD from your retirement account when you are:
- unmarried; or
- married and your spouse isn’t more than 10 years younger than you; or
- married and your spouse isn’t the sole beneficiary of your account
A factor of 27.4 at age 72 means that out of a $1 million total balance in the pre-tax retirement accounts as of December 31 of the previous year, someone who reaches age 72 in the current year must withdraw a minimum of:
$1,000,000 / 27.4 = $36,496.35
The factor for age 72 in the previous table was 25.6, which means the required minimum distribution would’ve been:
$1,000,000 / 25.6 = $39,062.50
The new table reduces the RMD by $2,556, which saves a few hundred dollars in taxes.
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