Longer lifespans have the Treasury Department rethinking RMD calculations.
The government body proposed revisions to the age that individuals must begin taking required minimum distributions, currently 70 ½.
The proposal is in accordance with Executive Order 13847, Strengthening Retirement Security in America, which President Trump signed in August 2018. Among other things, it loosened rules surrounding multiple employer plans (MEP), and allowed for online retirement plan disclosures in order to reduce printing and mail expenses.
“The Department of the Treasury and the IRS have examined the life expectancy and distribution period tables …and have reviewed currently available mortality data,” the Notice of Proposed Rulemaking states. “As a result of this review, the Treasury Department and the IRS have determined that those tables should be updated to reflect current life expectancies.”
The life expectancy tables in the proposed regulations “reflect longer life expectancies than the tables in the existing regulations.”
Proposed increases
Treasury noted that a 70-year old IRA owner who uses the Uniform Lifetime Table to calculate required minimum distributions must use a life expectancy of 27.4 years under the existing regulations. However, 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 required minimum distributions.
Additionally, under the existing regulations, a 75-year old surviving spouse who is the employee’s sole beneficiary and uses the Single Life Table to compute required minimum distributions must use a life expectancy of 13.4 years. Under the proposed regulations, the spouse would use a life expectancy of 14.8 years.
“The effect of these changes is to reduce required minimum distributions, which will allow participants to retain larger amounts in their retirement plans to account for the possibility they may live longer,” the notice concludes.
The proposal was entered into the Federal Register on Friday.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
