By Pension and Benefits Editorial Staff
The IRS has issued final regulations to update the life expectancy and distribution period tables under the required minimum distribution (RMD) rules. The tables reflect the general increase in life expectancy. The regulations are effective November 12, 2020. The tables apply for distribution calendar years beginning on or after January 1, 2022, with transition relief.
RMDs. RMDs apply to qualified plans, including 401(k) plans and profit-sharing plans. They also apply to IRAs (including SEP and SIMPLE IRAs), inherited Roth IRAs, tax sheltered annuity plans, and eligible deferred compensation plans.
In general, RMDs must begin for the year the individual reaches age 72. An RMD for a calendar year is determined by dividing the participant’s account balance by the applicable distribution period. Distribution periods are based on life expectancies. They are found in one of three tables, depending on the circumstances.
RMD tables for lifetimes and distribution periods. During the employee’s lifetime (including year of death), the applicable distribution period is determined by the Uniform Lifetime Table. The figures in that table are the joint and last survivor life expectancy for the employee and a hypothetical beneficiary ten years younger.
If an employee’s sole beneficiary is the employee’s surviving spouse and the spouse is more than ten years younger than the employee, then the applicable distribution period is the joint and last survivor life expectancy of the employee and spouse under the Joint and Last Survivor Table.
After the employee’s death, the distribution period is generally based on the designated beneficiary’s age using the Single Life Expectancy Table.
Effect of updated tables. The life expectancy and distribution period tables in the final regulations have been developed based on mortality rates for 2022. These mortality rates were derived by applying mortality improvement through 2022 to the mortality rates from the experience tables used to develop the 2012 Individual Annuity Mortality Basic Tables (which are the most recent individual annuity mortality tables). The mortality table in these regulations was developed by blending the resulting separate mortality rates for males and females using a fixed 50 percent male/50 percent female blend.
The life expectancy tables and applicable distribution period tables in the updated regulations generally reflect longer life expectancies than those provided in the prior tables. Distribution periods under the new regulations generally increase between one and two years. For example, a 72-year-old IRA owner who applied the prior Uniform Lifetime Table to calculate required minimum distributions used a life expectancy of 25.6 years. Applying the new Uniform Lifetime Table, a 72-year-old IRA owner will use a life expectancy of 27.4 years to calculate required minimum distributions. As another example, a 75-year-old surviving spouse who is the employee’s sole beneficiary and applied the prior Single Life Table to compute required minimum distributions used a life expectancy of 13.4 years. Under these regulations, a 75-year-old surviving spouse will use a life expectancy of 14.8 years.
Retirees and beneficiaries will be able to withdraw slightly smaller amounts from their plans each year. They could leave amounts in tax-favored retirement accounts for a slightly longer period of time, to account for the possibility that they may live longer.
The prior life expectancy tables in formerly applicable IRS Reg. §1.401(a)(9)-9 are used in several numerical examples in IRS Reg. §1.401(a)(9)-6, Q&A-14(f) that illustrate the availability of the exception described in IRS Reg. §1.401(a)(9)-6, Q&A-14(c) (regarding certain increasing payments under insurance company annuity contracts). The updated final regulations do not include revisions to these examples to reflect the life expectancy tables in these regulations. However, the IRS expects that the examples will be updated as part of the broader update of the regulations under Code Sec. 401(a)(9) to take into account the Setting Every Community Up for Retirement Enhancement Act (SECURE Act).
Future updates. The IRS notes that the final regulations do not provide for automatic updates to the life expectancy and distribution period tables. The IRS currently anticipates that it will review the tables at the earlier of: (1) ten years or (2) whenever a new study of individual annuity mortality experience is published.
Applicability date. The life expectancy tables and Uniform Lifetime Table under these regulations apply for distribution calendar years beginning on or after January 1, 2022. Thus, for example, for an IRA owner who attained age 70.5 in February of 2020 (so that the individual attains age 72 in August of 2021 and the individual’s required beginning date is April 1, 2022), these regulations do not apply to the minimum required distribution for the individual’s 2021 distribution calendar year (which is due April 1, 2022) but will apply to the minimum required distribution for the individual’s 2022 distribution calendar year (which is due December 31, 2022).
These regulations include a transition rule that applies if an employee died before January 1, 2022, and, under the rules of IRS Reg. §1.401(a)(9)-5, the distribution period that applies for calendar years following the calendar year of the employee’s death is equal to a single life expectancy calculated as of the calendar year of the employee’s death (or if applicable, the year after the employee’s death), reduced by one for each subsequent year.
Source: T.D. 9930, 85 FR 72472.
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