IRS Proposes Changes to Tables Used in RMD Calculations

The IRS has issued a notice of proposed rulemaking providing guidance relating to the life expectancy and distribution period tables that are used to calculate required minimum distributions (RMDs) from qualified retirement plans, individual retirement accounts (IRAs) and annuities, and certain other tax-favored employer-provided retirement arrangements.

An Executive Order signed on August 31, 2018, directed the Secretary of the Treasury to examine the life expectancy and distribution period tables in the regulations on RMDs from retirement plans and determine whether they should be updated to reflect current mortality data and whether such updates should be made annually or on another periodic basis. The purpose of any such updates would be to increase the effectiveness of tax-favored retirement programs by allowing retirees to retain sufficient retirement savings in these programs for their later years.

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 Uniform Lifetime Table to calculate RMDs must use a life expectancy of 27.4 years under the existing regulations. Using the Uniform Lifetime Table set forth in the proposed regulations, this IRA owner would use a life expectancy of 29.1 years to calculate RMDs.

The life expectancy and distribution period tables in the proposed regulations have been developed based on mortality rates for 2021. These mortality rates were derived by applying mortality improvement through 2021 to the mortality rates from the experience tables used to develop the 2012 Individual Annuity Mortality tables (which are the most recent individual annuity mortality tables).

The life expectancy tables and Uniform Lifetime Table under these proposed regulations would apply for distribution calendar years beginning on or after January1, 2021. Thus, for example, for an individual who attains age 70½ during 2020 (so that the RMD for the distribution calendar year 2020 is due April 1, 2021), the final regulations would not apply to the RMD for the individual’s 2020 distribution calendar year (which is due April 1, 2021), but would apply to the RMD for the individual’s 2021 distribution calendar year (which is due December 31, 2021).

The document includes proposed amendments to the income tax regulations under section 401(a)(9) of the Internal Revenue Code (Code) regarding the requirement to take RMDs from qualified trusts. They also apply with respect to the corresponding requirements for individual retirement accounts and annuities described in section 408(a) and (b), and eligible deferred compensation plans under section 457, as well as section 403(a) and403(b) annuity contracts, custodial accounts and retirement income accounts.

A public hearing is scheduled for January 23, 2020, and the IRS is requesting comments on its proposals. Text of the notice of proposed rulemaking is here.