# Application of the Updated Life Expectancy Tables

Although Individual Retirement Accounts (“IRAs”) have become ubiquitous in the Estate Planning world, they are relatively young having been created in 1974 with the passage of the Employee Retirement Income Security Act. Recently, the Setting Every Community Up for Retirement Enhancement Act of 2019 (“SECURE Act”) made significant changes to the rules regarding IRAs including raising the age at which taxpayers had to begin taking their Required Minimum Distributions (“RMDs”). Complex provisions of the Internal Revenue Code and Treasury Regulations govern RMDs and the calculation thereof. Determining the amount of an RMD for a particular year puzzles taxpayers and Estate Planning practitioners, alike.

In simple terms, the RMD is a fraction, the numerator of which is the IRA account balance on December 31 of the prior year and the denominator of which is the applicable distribution period. The IRS publishes tables in IRS Publication 590-B and Treas. Reg. §1.401(a)(9)-9 that provide the applicable distribution period based upon the age of the individual and their status as a participant, spouse, or non-spouse beneficiary. The IRS published revised tables effective January 1, 2022. The updated tables will lower the tax burden for taxpayers who use their lifetime to determine RMDs. Let’s review an example that demonstrates how the revised tables help lower potential tax liability.

Assume that Patty Participant turned 80 in 2021 and that her December 31, 2020, IRA balance was \$2 million. Participants whose spouses are not more than ten years younger use the Uniform Life Table to calculate their applicable distribution period. That table gives an applicable distribution period of 18.7. Her 2021 RMD was \$106,951.87 (2,000,000/18.7). Now let’s assume that Patty turned 80 in 2022 and that her December 31, 2021, IRA balance was \$2 million. The updated Uniform Life Table gives Patty a new applicable distribution period of 20.2. Thus, Patty’s 2022 RMD is \$99,009.90 (\$2,000,000/20.2). This produces a difference of \$7,941.97 between the RMDs calculated under the prior and revised Uniform Life Table. This difference could translate to a few thousand dollars in tax savings, depending upon Patty’s tax bracket.

Let’s change the facts to see how the updated tables affect certain designated beneficiaries. Assume Patty Participant dies in 2022 and names her spouse, Benjamin Beneficiary, as the sole beneficiary. Benjamin qualifies as an EDB under the SECURE Act. Spouses who are not more than ten years younger than their participant spouse determine their applicable distribution period using the Single Life Table, just like any other EDB. Let’s assume that Patty’s balance as of December 31, 2021, was \$2 million and that Benjamin turns 75 in 2022. Under the updated Single Life Table, the applicable distribution period is 14.8. Benjamin needs to withdraw \$135,135.14 (\$2,000,000/14.8) in 2022 for his RMD. Under the prior tables, Benjamin would have had an applicable distribution period of 13.4 producing an RMD of \$149,253.73 (\$2,000,000/13.4). This difference resulted in an additional amount of \$14,118.59 (\$149,253.73-\$135,135.14) distributable as an RMD under the prior Single Life Table.

Aside from surviving spouses and EDBs, certain other beneficiaries may use these tables. Let’s assume that Patty’s designated beneficiary is a non-spouse beneficiary in a pre-SECURE Act world. Pre-SECURE Act designated beneficiaries used the Single Life Table to determine their RMDs. Non-spouse beneficiaries calculate their applicable distribution period for the first year and then subtract one each subsequent year. Let’s assume that Patty died in 2015 and named her son, Brian Beneficiary, as the designated beneficiary. In 2016 Brian turned 30 and according to the Single Life Table in effect then, the applicable distribution period was 53.3. In 2017, his applicable distribution period was 52.3 (53.3-1). In 2022, six years after the initial determination date, Brian would use an applicable distribution period of 47.3 (53.3-6) to calculate his RMD. The new tables change that. Under the new tables, the non-spouse designated beneficiary uses their age as of the participant’s date of death to determine the applicable distribution period. Once the beneficiary has that number, the beneficiary subtracts the number of years that have passed since the first RMD to recalculate their RMD under the revised tables. Brian’s applicable distribution period under the new table based upon his age at Patty’s death is 55.3. Six years have passed, so his divisor for 2022 is 49.3 (55.3-6). This same process applies to any non-spouse EDB where the participant died post-SECURE, but prior to 2022.

Many advisors focus on the high-level plan without understanding the administrative details governing IRAs which they leave to the plan administrators and IRA custodians. As the Estate Planning world evolves, professionals seek ways to become better integrated advisors to their clients. The new tables extend the life expectancy for most individuals meaning smaller RMDs, which translates to lower tax liabilities. If you receive RMDs from an IRA, then it’s vital to review your RMDs to ensure proper calculation under the updated life expectancy tables. If you have questions regarding your own RMDs, reach out to me for help calculating your 2022 RMD.