Recent Modifications to Required Minimum Distribution Rules for Lifetime Distributions

Situation: Financial representatives know that clients who own IRAs or participate in qualified retirement plans must take distributions from their accounts according to the required minimum distribution (RMD) rules. The RMD rules mandate the timing and minimum amount an IRA owner and retirement plan participant must distribute both during life and after his/her death. Clients must comply with the rules because failing to satisfy the minimum distribution requirements results in a penalty of 50% of the amount that should have been taken but was not.

Financial professionals might be surprised to learn that the amount required to be distributed recently changed. On February 23, 2022, the Treasury released proposed regulations that amend the RMD rules to conform to the statutory changes made by the SECURE Act enacted in 2019.1 The regulations contained a few surprises. In addition, the IRS updated the tables used to calculate required minimum distributions. The new tables apply to distribution calendar years beginning January 1, 2022. The tables reflect longer life expectancies than the previous tables and so provide smaller annual RMDs. As a result of these changes, I thought it important to review how the new RMD rules work.

This Counselor’s Corner will address minimum distribution requirements during the lifetime of the participant. Next month we will describe the more complex rules concerning required distributions after the death of the participant.

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