Rethinking the Required Minimum Distribution (RMD)

Did you ever stop to think how helpful RMDs can be in retirement planning?

You can delay them to 72 if the cash is not needed, but when they are required, the amounts are based on life expectancy.

Also, RMDs are based on an annual changing amount, the account balance on December 31 of the previous year. Because of this they automatically adjust for investment performance and hopefully inflation based on investment growth.

As well as any other method, you should not outlive your money assuming an investment return of 5% or more.

Even if you have a Roth IRA or 401k not requiring RMDs, nothing stops you from applying the same methodology by using the IRS tables to calculate your own annual distribution.

Distribution rules were changed in 2020. You can find those new rules here.

The life expectancy table have been updated with the net result being a lower required minimum distribution. For example, under the new tables at age 72 the required distribution on a account of $1 million is $36,496 (assuming a single person or one whose spouse is not more than 10 years younger). Under the old rules the RMD on $1 million would be $39,062.

However, because the IRS was delayed in issuing final regulations, These new tables are effective for RMDs beginning on January 1, 2022. The old tables will still apply for 2021. This delay will require taxpayers to take a higher RMD than should have been necessary!