Good news for retirees: For the first time in decades, the RMD formula is changing
Good news for retirees: For the first time in decades, the RMD formula is changing

The IRS has good news for retirees: With a lower minimum required distribution (RMD), you can now keep more money in a tax-deferred retirement account.

For the first time in 20 years, the IRS has updated its actuarial table, which specifies how much people 72 and older must withdraw from their retirement accounts. A new table that predicts longer life is now used to calculate annual RMDs for IRAs, 401(k)s, and other retirement vehicles. If you need help planning your RMD and meeting your retirement income requirements, consider working with a financial advisor.

What are RMDs and how are they calculated?

One of the main benefits of retirement accounts is the tax benefits they offer. Traditional IRAs and 401(k)s allow retirement savers to defer paying taxes until they withdraw money from their accounts. This allows funds to grow faster over time. However, you can only defer your taxes for so long. To prevent you from putting money in a retirement account indefinitely, the IRS requires you to withdraw a certain amount each year after you reach a certain age.

Previously, when you reached age 70.5, you had to start withdrawing from your IRA or employer-sponsored pension plan. However, the SECURE Act of 2019 made significant changes to the initiation of RMDs. If you were 70.5 in 2019. If you are 18, the previous rules apply and you must collect your first RMD by April 1, 2020. However, if you hit 70.5 in 2020 or later. You must now reach your first RMD by April 1 of the year after you turn 72.


People with the following accounts are subject to RMDs:

  • SEP IRAs
  • Traditional IRAs
  • 403(b) plans
  • 401(k) plans
  • 457(b) plans
  • Profit sharing plans
  • Other defined contribution plans.

It’s important to remember that Roth IRAs are not subject to RMDs.

Computing your RMD is relatively easy. Start by determining the market value of your superannuation account as of December 31. last year. Then divide that value by the distribution period that corresponds to your age on the IRS Uniform Lifecycle Table.

For example, a 72-year-old retiree with $500,000 in her IRA would divide $500,000 by her distribution period, which is 27.4. Therefore, she needs to withdraw at least $18,248 from her IRA in 2022.

Why the new RMD formula is good for retirees

With the IRS raising the average life expectancy from 82.4 to 84.6, retirees may need to distribute their wealth over more years. Therefore, the RMD from 2022 will be lower than the previous formula that has been in place since 2002.


This is good news for retirees or anyone affected by RMDs. Your retirement savings may remain in an IRA, 401(k), or tax-advantaged account due to the smaller withdrawals required each year. A smaller RMD reduces your tax liability and may put you in a lower tax bracket.

According to the previous uniform lifetime table, a 72-year-old with $500,000 in a 401(k) would have to withdraw $19,531 ($500,000/$25.6) in the first year of taking RMD. That’s $1,283 more in income tax than the minimum withdrawals required in the revised form.

Meanwhile, a 72-year-old with $2 million in his retirement account would have to withdraw $78,125 using the old formula ($2 million/$25.6). However, the updated formula results in an initial RMD of only $72,992 ($2 million / $27.4), which means the retiree will withhold an additional $5,133 in accrued taxes in his retirement account.


Bottom line

For the first time since 2002, the IRS has updated the actuarial table that determines the amount a person of a certain age must withdraw from their IRA or 401(k). While the SECURE Act changed the RMD age from 70.5 to 72, the updated Uniform Lifetime Table reduces the size of the RMD, allowing you to keep more of your wealth in a tax-advantaged account. Of course, the RMD is just the minimum amount that needs to be withdrawn each year. You can certainly take more out of your IRA or 401(k), but keep in mind that the bigger the payout, the bigger your tax bill.

Tips for Withdrawing Your Retirement Assets

A financial advisor can be a trusted resource when planning your reduction phase. Finding a qualified financial advisor is not difficult. SmartAsset’s free tool puts you in touch with up to three financial advisors in your area, and you can interview your advisor match for free to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started today.

Forecasting your expenses and expense ratios is an important part of retirement planning. Researchers at Boston College’s Center for Retirement Research found that the average retiree family reduces spending by 1.5-1.6% annually during retirement. This means that household consumption of pensioners falls by an average of 0.75-0.80% per year and reaches double digits 20 years after retirement begins. SmartAsset’s budget calculator can help you track your monthly expenses.

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Jake Smith

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Jake Smith

He is the editor of Eragoncred. Previously, he was editor-in-chief of Eragoncred and a financial industry reporter. Jake has spent most of his career as a Digital Media journalist and has over 10 years of experience as a writer and editor.