New Life Expectancy Tables Will Decrease RMDs

The IRS has issued final regulations on mortality tables to be used for calculating required minimum distributions, which reflect longer life expectancies.

The IRS has issued final regulations providing guidance relating to the life expectancy and distribution period tables that are used to calculate required minimum distributions (RMDs) from qualified retirement plans, individual retirement accounts (IRAs), annuities and certain other tax-favored employer-provided retirement arrangements.

The final regulations in this document apply to distribution calendar years beginning on or after January 1, 2022.

The IRS explains that Executive Order 13847, which was signed on August 31, 2018, directed the secretary of the Treasury to examine the life expectancy and distribution period tables in the regulations on RMDs from retirement plans and determine whether they should be updated to reflect current mortality data and whether such updates should be made annually or on another periodic basis. The purpose of any updates would be to increase the effectiveness of tax-favored retirement programs by allowing retirees to retain sufficient retirement savings in these programs for their later years.

On November 8, 2019, the Treasury Department and the IRS published proposed regulations setting out updated life expectancy and distribution tables. A public hearing on the proposed regulations was held on January 13. After consideration of written comments and comments from the hearing, the proposed regulations were adopted as revised by the final regulations.

The life expectancy tables and applicable distribution period tables in the regulations generally reflect longer life expectancies than the formerly applicable tables. For example, a 72-year-old IRA owner who applied the former Uniform Lifetime Table to calculate RMDs used a life expectancy of 25.6 years. Applying the Uniform Lifetime Table set forth in the new regulations, a 72-year-old IRA owner will use a life expectancy of 27.4 years to calculate RMDs.

The effect of these changes is to reduce RMDs generally, which will allow participants to retain larger amounts in their retirement plans to account for the possibility they may live longer, the IRS says.

The text of the final regulations and the life expectancy tables to be used are available here.