RMD Tables

Take-Away: Beginning in 2022 there will be new life expectancy tables used To calculate required minimum distributions (RMDs.) In order to avoid the 50% penalty for failing to take the full RMD, it is important to use the correct Life Expectancy Table.

Background: In November 2020 the IRS released new life expectancy tables to be used to calculate required minimum distributions (RMDs.) In something of a surprise to many, it is the IRA owner’s responsibility to calculate their RMD, not their IRA custodian, although most custodians do the ‘heavy-lifting’ for their clients in this regard. The new Tables provide slightly longer life expectancies, which in turn will reduce an IRA owner’s RMD.

Three Life Expectancy Tables: RMD calculations can get a bit confusing though, because there are three different Life Expectancy Tables that are used to calculate RMDs.

1. Uniform Lifetime Table: This Table is only used for the account owner’s own IRA or qualified plan retirement account to calculate their RMD for the year.

Recalculating Table: The Uniform Table is a recalculating table. Each year the account owner will find his/her age and a corresponding life expectancy factor (or divisor), which is then divided into the prior year’s December 31 account balance to determine the RMD for the year.

2. Joint (and Last Survivor) Table: This Table is used for the account owner only when (i) a spouse is (ii) the soledesignated beneficiary (iii) who is more than 10 years younger than the IRA owner or plan participant.
3. Single Life Expectancy: Afterthe SECURE Act this Table is only used to calculate RMDs for eligible designated beneficiaries, i.e. a minor child of the account owner, a spouse of the account owner, a disabled or chronically ill beneficiary, and those designated beneficiaries who are not more than 10 years younger than the account owner.

Not by Used by the Account Owner: This Table is never used by the retirement account owner to calculate his/her annual RMD.

Reduce by 1.0 Rule: The beneficiary’s initial life expectancy factor that is determined in the year after the account owner’s death is automatically reduced by 1.0 each following year. Unlike the Uniform Table, there is no recalculation of the life expectancy factor each subsequent year- it is simply reduced by 1.0 from the prior year’s age. Note: Even though the CARES Act waived all RMDs for 2020, the beneficiary must still count the one year during which the RMD was waived to determine their life expectancy factor for 2021 and all future years, i.e. missing the RMD in 2020 does not mean the year 2020 is not counted for purposes of determining the beneficiary’s age and their life expectancy.

Ghost Life: In addition, this Single Life Table is used if the account owner turns age 72 and later dies without having named a living beneficiary, aka a  ghost life expectancy is used for RMDs.

Inherited IRAs: Also, this Single Life Table is used to calculate RMDs from inherited retirement accounts if the beneficiary inherited the account prior to the SECURE Act.

Summary: Consequently, this Table is thus used by individual designated beneficiaries who inherited the retirement account before 2020, or by eligible designated beneficiaries who inherited the retirement account in 2020 or later years. The beneficiary uses the life expectancy factor for his/her attained age in the year after the account owner’s death.

Non-spouse Designated Beneficiaries: This is  is the only time the beneficiary will use the Single Life Expectancy Table, because non-spouse beneficiaries cannot recalculate in future years the life expectancy factor in the year after the death of the retirement account owner.

Change in Tables: For those who turn 72 in the second half of 2021 there may be some added calculations. The first year’s RMD can be delayed until April 1 of the following year. So if an IRA owner turns 72 in the second half of 2021, they have until April 1, 2022 to take their first RMD. If they delay in taking that first RMD, the Uniform Life Table that applied in 2021 will be used to calculate that first RMD that is paid no later than April 1, 2022. Then, a second RMD will have to be calculated for 2022, which will have to be paid to the owner no later than December 31, 2022, i.e. two taxable RMDs will be taken in 2022. That second RMD will be calculated using the updated Uniform Lifetime Table.

Example: Waldo turned 72 in October 2021. Thus, this will be Waldo’s first RMD year. Since this is Waldo’s first RMD year, he is permitted to delay taking his RMD until April 1, 2022. Waldo elects to defer taking his first RMD early in February 2022. Thus, in February,  2022 Waldo uses the ‘old’ Uniform Lifetime Table to calculate his delayed 2021 RMD. He looks up his age in the 2021 Table (age 72) and identifies the corresponding factor: 25.6. Waldo then divides 25.6 into his IRA account balance on December 31, 2020. Later in 2022, Waldo must then take his 2022 RMD. Assume that Waldo decides to take that 2022 RMD in March, 2022. Waldo looks at the ‘new’ Uniform Lifetime Table for age 73 to calculate his 2022 RMD. The factor under the ‘new’ Table for a 73 year old is 26.5. Waldo divides  26.5 into his December 31, 2021 account balance to calculate his RMD for 2022.

Observation: Waldo’s divisor in 2021 was 25.6. His divisor in 2022, when he is one year older, is 26.5. The larger the divisor, the smaller the amount of his taxable RMD. The change in Uniform Life Tables at age 72 is close to 2.2 years, which results in smaller RMDs at age 72.

Conclusion: While the change in the Uniform Lifetime Table is not dramatic, it will have an impact on all account owners who face taking RMDs.