Smaller IRA Withdrawals Coming Up
Generally, after you turn 72, you will need to withdraw a certain amount of money from your individual retirement account (or other deferred tax plan) each year, whether you need the money or not. Your required minimum payout is based on the total amount in your deferred tax accounts divided by a factor from the IRS life expectancy tables. The CARES bill, passed in March 2020 in response to the coronavirus pandemic, allowed seniors to skip RMDs in 2020, but Congress is unlikely to extend that waiver this year.
SEE MORE Retirees get another break with the extension of the RMD waiver
Starting in 2022, the IRS will be using new distribution tables to account for the fact that people are living longer - meaning they will need their savings longer too. The new formula reflects life expectancy, which is roughly one to two years longer than in the existing life expectancy tables, reducing the size of the RMDs. For example, according to the current formula, a 72 year old with $ 300,000 in an IRA would have to withdraw $ 11,719. Under the new formula, their RMD would be $ 10,948, which is about a 7% difference.
The last time the IRS revised the tables was in 2002. You can always take more than what is required - and many seniors do. However, if you fail to take out the minimum, the penalty will be 50% of the amount you should have withdrawn.
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