The IRS has proposed updated life expectancy and distribution period tables under the required minimum distribution (RMD) rules. The proposed tables reflect the general increase in life expectancy, and would apply for distribution calendar years beginning on or after January 1, 2021, with transition relief.
Effect of Proposed Tables
Distribution periods under the new rules would generally increase between one and two years. Retirees and beneficiaries would be able to withdraw slightly smaller amounts from their plans each year. They could leave amounts in tax-favored retirement accounts for a slightly longer period of time, to account for the possibility that they may live longer.
Required Minimum Distributions
RMDs ensure that the favorable tax treatment for a retirement plan is used primarily to provide retirement income rather than to increase the participant’s estate. RMDs apply to qualified plans, including 401(k) plans and profit sharing plans. They also apply to IRAs (including SEP and SIMPLE IRAs), inherited Roth IRAs, Tax Sheltered Annuity plans, and eligible deferred compensation plans.
In general, RMDs must begin for the year the individual reaches age 70 1/2. The RMD for a calendar year is determined by dividing the participant’s account balance by the applicable distribution period. Distribution periods are based on life expectancies. They are found in one of three tables, depending on the circumstances.
During the employee’s lifetime (including year of death), the applicable distribution period is determined by the Uniform Lifetime Table. The figures in that table are the joint and last survivor life expectancy for the employee and a hypothetical beneficiary 10 years younger.
If an employee’s sole beneficiary is the employee’s surviving spouse and the spouse is more than 10 years younger than the employee, then the applicable distribution period is the joint and last survivor life expectancy of the employee and spouse under the Joint and Last Survivor Table.
After the employee’s death, the distribution period is generally based on the designated beneficiary’s age using the Single Life Expectancy Table.
The life expectancy tables and applicable distribution period tables in the proposed regulations reflect longer life expectancies than the tables in the existing regulations. For example:
- A 70-year old IRA owner who uses the existing Uniform Lifetime Table to calculate RMDs must use a life expectancy of 27.4 years. Using the proposed Uniform Lifetime Table, this IRA owner would use a life expectancy of 29.1 years.
- A 75-year old surviving spouse who is the employee’s sole beneficiary and uses the existing Single Life Table to compute RMDs must use a life expectancy of 13.4 years. Under the proposed table, the spouse would use a life expectancy of 14.8 years.
Applicability Date; Transition Rule
The life expectancy tables and Uniform Lifetime Table under the proposed regulations would apply for distribution calendar years beginning on or after January 1, 2021. For example, for an individual who attains age 70 1/2 during 2020 (so that the minimum required distribution for the distribution calendar year 2020 is due April 1, 2021), the final regulations would not apply to the minimum required distribution for the individual’s 2020 distribution calendar year (which is due April 1, 2021), but would apply to the minimum required distribution for the individual’s 2021 distribution calendar year (which is due December 31, 2021).
The proposed regulations include a transition rule that applies if an employee died before January 1, 2021, and the distribution period that applies for calendar years following the calendar year of the employee’s death is equal to a single life expectancy calculated as of the calendar year of the employee’s death (or if applicable, the year after the employee’s death),