BENEFIT: The change in the RMD formula is good news for retirees | Opinion


In 2018, then-President Trump ordered the IRS by executive order to study the life expectancy tables used to determine the required minimum distributions, or RMDs, of tax-advantaged retirement plans. The purpose of the order was to see if the tables should be updated to reflect improvements in longevity since the tables were last updated in 2002.

The IRS complied and the result is good news for retirees. The IRS has indeed updated its actuarial tables for the first time in two decades, effective Jan. 1, reflecting improved mortality rates. The new tables, based on longer projected lifespans, mean lower RMDs, allowing retirees to keep slightly more money in their tax-deferred retirement accounts than under the old tables.

A little information on RMDs and how they are determined might be helpful. So-called tax-advantaged retirement plan vehicles allow account owners to defer paying taxes on contributions, income, and account growth until the funds are withdrawn. Because more money remains invested, it allows it to grow at an accelerated rate compared to an account where the money must be diverted to pay taxes.

Naturally, most would prefer never to pay taxes on the funds, so unless the money is needed to pay living expenses, the tendency would be to leave the money in these accounts indefinitely and avoid tax altogether. liability to tax. This is where the problem lies from the point of view of public revenues. According to the website,, at the end of 2021 there was over $39 trillion in untaxed value in these accounts. Yes, I said, $39 trillion, the potential tax revenue out of which would be trillions and trillions of dollars.

Allowing these funds to remain permanently untaxed would result in a staggering loss of revenue for the government. To prevent this from happening, the tax code requires you to withdraw a specific minimum amount (the RMD amount) each year once you reach a certain age (currently 72), and this amount is based on your expected life.

RMDs apply to traditional IRAs, SEP IRAs, SIMPLE IRAs, profit-sharing and defined benefit plans, as well as 401(k), 403(b), and 457(b) plans. However, increasingly popular Roth IRAs are NOT subject to RMD rules.

Calculating RMDs is relatively straightforward and simple. First, you determine the value of your retirement account on the previous December 31st. Then you divide that value by the distribution period number listed in the IRS Uniform Life Table that corresponds to your age. The result is your RMD amount.

It is important to note that the year you reach age 72, your RMD start age, you have until April 1 of the following year to actually take your first RMD. However, your 2nd RMD will need to be taken at the end of that same year or earlier if you delay the 1st RMD until this April deadline, which means you will be taxed on two RMDs in one year, so be aware of this when planning RMD #1. After that, RMDs must be taken every year before the end of the year to avoid substantial penalties.

For example, a 72 year old has a distribution period figure of 27.4 according to the new tables. If she saved $1,000,000 in her IRA, her initial RMD would be $36,496. According to the previous table, the balance should have been divided by 25.6, making his first RMD $39,063.

Of course, you can always withdraw more than your RMD if you wish. But these new tables give retirees a bit more flexibility to keep more of their money invested and work for them and their families over the long term.

Lane Keeter, CPA is the Principal Partner of EGP, PLLC, CPAs & Consultants (, a full-service financial firm with offices in Arkansas, Managing Partner of EGP’s Heber Springs office and winner of the Sun-Times Reader’s Choice Award for Best Accountant.


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