Generally, once you turn 72, you’re required to take a specific amount of money out of your individual retirement accounts (or other tax-deferred plans) every year, whether you need the money or not. Your required minimum distribution is based on the total amount of money in your tax-deferred accounts divided by a factor from IRS life-expectancy tables. The CARES Act, enacted 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.
Starting in 2022, the IRS will use new distribution tables to account for the fact that people are living longer—which means they need their savings to last longer, too. The new formula reflects life expectancies that are about one to two years longer than in the existing life-expectancy tables, which will reduce the size of RMDs. For example, under the current formula, a 72-year-old with $300,000 in an IRA would be required to withdraw $11,719. Under the new formula, her RMD would be $10,948, a difference of about 7%.
The last time the IRS revised the tables was in 2002. You can always take more than the required distribution—and many seniors do. But if you fail to take out the minimum, the penalty is 50% of the amount you should have withdrawn.
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