This post is for those people who need to take a required minimum distribution (RMD) in 2022. For the first time in over 20 years, the IRS released a new set of life expectancy tables underpinning the calculation of RMDs. So it’s a good idea to double check that you’re taking the right amount.
Ask your advisor or custodian to confirm that they are calculating your RMD based on the new life expectancy tables. The new tables have been difficult to locate as the IRS has not yet posted them prominently on their website. As Natalie Choate mentions in her article here, the IRS historically included the tables in IRS Publication 590-B. However, as of the date of this post, that document has not been updated to include the new tables. Check out the article for some other sources for accessing the new tables.
I’ve known some advisors who treat the calculation of RMDs with mild annoyance. They don’t want to invest the time and effort to double check the numbers. In fact, many advisors will outsource the RMD calculation to the client’s custodian. They will basically tell the client “it’s not my job” to calculate the RMD amount. But custodians can and do make mistakes, especially when it comes to more nuanced situations such as a 10+ year age difference between spouses or inherited IRAs with trusts or multiple beneficiaries. So don’t hesitate to ask your advisor to perform a detailed calculation that reconciles with your custodian.
If you use the old tables by mistake, it’s not the worst outcome. The old tables will cause your RMD amount to be higher than needed. Fortunately, the higher amount will provide a small reduction in future RMDs and won’t trigger the dreaded 50% penalty on RMD amounts not taken. However, the higher amount could bump you into a higher bracket for Medicare premium adjustments (IRMAA). IRMAA runs on a two year lag (e.g. 2022 premiums are based on 2020 income amounts), so you won’t notice the difference for a while. But if you like to save money, ask your advisory team to help you manage your IRMAA brackets every year.
I advise clients start by taking the bare minimum RMD amount as calculated under the correct, updated life expectancy tables. Clients with charitable intentions can also use qualified charitable distributions (QCDs) to satisfy RMD obligations. You can always take more funds out later in the year. By that point, there should be more clarity for your tax situation and the associated planning opportunities.
