If you are retired and have reached your seventies, you may have the opportunity to draw a little less income from your retirement savings accounts in 2022.
Next year, the Internal Revenue Service plans to update the life expectancy tables used for the calculation of required minimum distributions, or RMDs – the annual withdrawals you are required to make from certain kinds of retirement plans.
The I.R.S. knows that on the whole, Americans are living longer than they used to, and therefore, their retirement savings need to last longer. In recognition of this, it is revising the tables used to figure RMDs for the first time since 2002.
Under the new life expectancy tables, RMD amounts are reduced a bit.
Generally speaking, they shrink by several percentage points.
For example, if you turn 72 in 2022 and take your first RMD from a traditional IRA by the end of 2022, that RMD will be 6.65% smaller than it would be using the 2021 tables.
To further illustrate this, let’s look at an example in dollars. If you turn 72 in 2022 and decide to take your first RMD from a traditional IRA that has $3,000,000, your RMD is $109,489 by calculations using the 2022 tables. Using the current tables, the 2022 RMD would be $117,186.
Distributions from traditional IRAs must begin once you reach age 72. The money distributed to you is taxed as ordinary income. When such distributions are taken before age 59½, they may be subject to a 10% federal income tax penalty. You may keep contributing to a Traditional IRA past age 72, as long as you meet the earned-income requirement.
The reduction in RMDs may be a benefit.
For some retirees, the money they must remove from retirement accounts is unnecessary to support their living expenses. Reducing the amount of RMDs likely results in lower taxes and may help retirees pass more wealth to family members or charities.
Andrea L. Blackwelder, CFP®, ChFC, CDFA® and Joseph D. Clemens, CFP®, EA are the founders and partners of Wisdom Wealth Strategies. Their shared passion is simple: to bring financial empowerment, understanding, and peace-of mind to people who wish to improve their financial future, build wealth for their families, and achieve financial independence. Click here to find out more about how you can work with the Denver Financial Advisors at Wisdom Wealth Strategies.