At least not in many instances. Notably, it has been nearly two decades since the current set of life expectancy tables were released by the IRS as part of the Final Regulations for RMDs issued in April 2002 (that put in place the current RMD rules used today). That’s a difference of just $2,100. If such an individual were within the 24% Federal tax bracket, the result would be a one-year reduction in Federal income taxes of $5,000 x 24% = $1,200, on which the subsequent growth on the tax-deferred dollars would be just $72/year. Get popular report "Quantifying the Value of Financial Planning Advice"! For instance, when Jack was 41 years old, his factor was 43.6 – 1 = 42.6. Traditional IRA RMD Calculator Quantifying the Value of Financial Planning Advice, The Psychology of Money: Timeless lessons on wealth, greed, and happiness, “Top 10 Influential Blog for Financial Advisors”, “#1 Favorite Financial Blog for Advisors”. Notably, though, individuals taking RMDs will need to consider the transition to the new life expectancy tables if/when they take effect in 2021. For some time now, it has been expected that the IRS would revise its roughly 20-year-old life expectancy tables that have been used to calculated required minimum distributions. While an individual can only have one true life expectancy – after all, you only live once! Using the Single Life Expectancy Table, Jack determined that his first-year factor to calculate RMDs from the inherited account was 43.6. On February 8, 2021, prior to his April 1, 2021 required beginning date, Jamie calls his financial institution to process his 2020 RMD. Specifically, the table is used by all retirement account owners, other than those who have named a much (11+ years) younger spouse as their sole beneficiary for the entire year, to calculate the RMDs applicable to their own retirement accounts (but not inherited retirement accounts). The Joint Life and Last Survivor Expectancy Table is also used by (some) retirement account owners to determine lifetime RMDs for their own accounts (as opposed to post-death RMDs from inherited IRAs). By contrast, the general rule for beneficiaries (which applies to all beneficiaries, other than a limited exception for certain spousal beneficiaries who remain a beneficiary of an inherited retirement account [as opposed to, say, doing a spousal rollover of the amounts into a retirement account in their own name]), is that they only look at the Single Life Expectancy Table to find the appropriate life expectancy factor one time… in the year after they inherit an account. Given the income Jamie will earn during the first 10 months of 2020, he does not want to take any additional income from his IRA. The new rules must be understood by those whose provide advice regarding RMDs – including post-mortem RMDs. The Single Life Expectancy factor for a 40-year-old under the Proposed Regulations is 45.7. That’s because it’s the table that is generally used to determine the life expectancy factor for calculating RMDs during an account owner’s lifetime. A QLAC is … Thus, they must still go through the formal process, including a public comment period, before they are finalized and can used by retirement account owners and beneficiaries. The table begins at age 70 (though only 70-year-old individuals born between January 1st and June 30th use the age-70 factor), which is the youngest age for which an RMD can apply to one’s own retirement account, and provides a decreasing life expectancy factor (which produces an RMD that is a higher percentage of the previous year-end’s account value) for each subsequent year until a person reaches age 115 (at which point the factor levels off to 1.9)! Not likely. As a result of this review, the Treasury Department and the IRS have determined that those tables should be updated to reflect current life expectancies. Thus, the age at which a beneficiary must begin taking distributions is determined primarily by the age they are at the time that they inherit (as opposed to those taking lifetime RMDs, which ‘always’ begin at age 70 ½ [unless the still-working exception applies])! ©2020 Keebler and Associates. That said, given the fact that the changes proposed by the IRS are relatively straightforward and non-controversial, it’s likely the changes to the tables will be finalized sometime in 2020 in the same or substantially similar form.
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