If you have been taking life expectancy distributions from an inherited IRA, should you care about the new RMD (required minimum distribution) tables effective in 2022?
That’s a question raised by S.L., and the answer is “yes.” Anyone who is a beneficiary of an inherited IRA will need to address specific questions with his or her tax adviser, as each situation is unique to each taxpayer. With that in mind, here is S.L.’s question and some general guidelines.
“I’m 56 years old this year … and inherited an IRA from my mom, who passed away in 2019 — she took her RMD already in 2019. I deferred taking an RMD in 2020 and I took an RMD in 2021 using 29.5 as the life expectancy divisor. For 2022, I was expecting to use 28.5 as the divisor. The custodian of my account is telling me I should be using 30.5 now. Is using 30.5 for me in 2022 correct?”
A Change In Tables
New tables for RMDs apply for 2022 for both owners and beneficiaries of IRAs.
Generally speaking, the divisor has increased for a given age, reflecting an increase in life expectancy. That means RMDs are now slightly lower than before, all else being equal.
Keep in mind, however, that the divisor is used to calculate a value based on the previous 12/31 value of the IRA. To see the reduction in RMD amount under the new divisors, you would have to compare two years with identical values. That is, if your 12/31/2021 value and your 12/31/2020 value are the same, the dollar value of your RMD under the new tables will be lower than under the old tables.
Inherited Before 2022?
That’s all well and good, but do the new tables apply to beneficiaries who inherited IRAs before 2022, when the new tables went into effect?
What happens when, as in S.L.’s case, you already have been taking an RMD from an inherited account based on your pre-2022 life expectancy divisor? Do you use a different divisor based on the new life expectancy tables? In other words, does your divisor reset?
First, Find the New Tables
You can find the RMD tables in the recently released IRS Pub. 590-B. How do you know you are looking at the latest version of Pub. 590-B? Make sure it says “For use in preparing 2021 returns” on the first page.
Then, Find the Reset for 2022
On Page 13 of Pub. 590-B, there is a section titled “Revised life expectancy tables for 2022.”
Quoting Pub 590-B: “If you are a beneficiary who was taking required minimum distributions prior to 2022 based on your life expectancy in the year following the owner’s death using the life expectancy tables in effect before 2022 and reducing that number by 1, you can reset your life expectancy for 2022 based on the new tables.
“In order to do this, find your life expectancy based on your age in the year following the owner’s death on Table I and reduce that number by 1 for each year since the year of the owner’s death.”
While the concept of reducing the life expectancy by one for each year remains the same as before, a person with an inherited IRA who is using the Single Life Table (Table I) must “reset” by looking up the new divisor at the age when the life expectancy was set. Using that new divisor, life expectancy will be reduced by one each year. That sounds rather complicated; an example will help.
The New Reset Divisor
Let’s use S.L.’s situation. When his mom passed in 2019, he had no RMD for that year because his mom had already taken her RMD before she died.
What happened next? As explained in Pub. 590-B, under the section “What Age(s) Do You Use With the Table(s),” for Table I (Single Life Expectancy): “If you are a designated beneficiary figuring your first distribution, use your age as of your birthday in the year distributions must begin. This is usually the calendar year immediately following the calendar year of the owner’s death (emphasis mine).”
Therefore, in 2020, at age 54, S.L.’s divisor was set at 30.5. However, he was able to decline taking an RMD that year due to the CARES (Coronavirus Aid, Relief, and Economic Security) Act, which suspended RMDs for the year once it became law in March 2020.
In 2021, with the divisor reduced by a year (from 30.5 to 29.5), S.L. took an RMD.
If the Single Life Table had remained unchanged, his divisor for 2022 would have been 28.5, which was what S.L. expected. But it did change.
Based on the instructions in Pub. 590-B (but check with your tax adviser), S.L. will need to reset to the new number attached to his age (54) in the calendar year immediately following the calendar year of the owner’s (his mom’s) death.
That new number for age 54 is 32.5 (an increase of two over the previous number), so S.L. will then subtract by one for 2021 and by another one for 2022, putting his current divisor at 30.5 — and confirming the figure S.L.’s custodian gave him.
SECURE Act’s 10-Year Rule Does Not Apply
Note that the SECURE (Setting Every Community Up for Retirement Enhancement) Act (which was passed at the end of 2019) and its 10-year requirement (in most cases) for completely emptying an inherited IRA does not factor into S.L.’s situation, as S.L.’s mom passed away in 2019, before the SECURE Act took effect. The act affects deaths occurring after 2019.
This year in particular, we are dealing with changes in RMDs that are significant, complicated by individual fact patterns that vary person to person. Your situation will be quite different from the fact pattern we discussed here. Be sure to get advice from your tax adviser before acting.
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