Recently, the IRS proposed new regulations that would change the calculations used for required minimum distributions (RMDs) for qualified retirement plans, IRAs, and annuities. The IRS will take comments until January 2020 with an eye to make any changes effective in 2021.
These regulations would not change the age at which RMDs must begin, although the SECURE Act, which has already passed in the House, has a provision to raise the age from 70-1/2 to 72. Instead, the proposed regulations update the mortality assumptions used to calculate the distribution period tables which govern RMDs. This follows from an executive order in August of 2018 which directed the Secretary of the Treasury to examine the life expectancy and distribution period tables to determine if they should be updated and if further reviews and updates should be made periodically.
The new mortality assumptions estimate individuals will live longer, thereby increasing the distribution period and lowering the required minimum distribution. This table illustrates the differences in distributions required between the current life expectancy and the newly proposed life expectancy given a participant with $500,000 and using the Uniform Lifetime mortality table.
|
Age |
Current Distribution Period[1] |
Current Required Distribution |
Proposed Distribution Period |
Proposed Required Distribution |
|
70 |
27.4 |
$18,248 |
29.1 |
$17,182 |
|
80 |
18.7 |
$26,738 |
20.2 |
$24,752 |
The Distribution Period is the life expectancy of the individual using that specific mortality table, so this change implies that an individual aged 70 was presumed to live to age 97.4, but is now presumed to live to age 99.1. The biggest changes in the life expectancy are at the younger end of the table with those aged 70 showing an increase of 1.7 years. Meanwhile, those aged 90 show an increase of just 0.7 years.
We await further comments on this proposed change as well as a public hearing in January of 2020.
[1] https://www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf
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