What does the IRS have in store for IRA accounts in 2020?
The proposed regulations by the IRA regarding IRAs propose to change the life expectancy tables and distribution period tables for computing the required minimum distribution (RMD). If you are an owner of an individual retirement account as of 2020, you may want to notify your beneficiaries of these proposed changes as it will affect them in the future. You should also note that under the SECURE Act, beginning in 2020, the starting age for IRA distributions increases from 70 ½ to 72.
How did these proposed IRA changes come into the view of the IRS? The Department of the Treasury and the IRS looked at the life expectancy and distribution tables, and the current mortality data. Because people are living longer, they thought that the law needed to be updated to reflect current life expectancy. The new information was based on mortality rates for 2021. Yes, I know, it hasn’t happened yet, but data can be projected into the future.
Just like the rest of the world, life expectancy in America has increased. In the former life expectancy tables, a married couple are alive and are within 10 years of each other’s age range, would have had a life expectancy at age 70 of 27.4 years. Under the new table, the life expectancy would be 29.1 years. This appears unusual, but then again, the IRS does not surprise us.
What is an RMD?
RMD is the required minimum distribution a person must take. The changes make it so that once you have reached 72, you must start to take little amounts out of your IRS because the IRS wants to tax it. A longer life expectancy for people would mean a smaller RMD. So, respectfully, the IRS does not want to fall behind in collecting taxes on the smaller amounts being taken out by people.
“For example, see below for a 73-year-old couple with a $560,000 IRA beginning of year balance.
• Under the old table, they would have an RMD at age 73 of $22,672.
• Under the new table, they will have a smaller RMD of $21,212.
• Under the old table, if one of them lived to age 95, and they made 6%, they’d take out (and pay taxes on) about $920,000 of total RMDs and have an ending balance to the beneficiaries of about $448,000.
• Under the proposed table, they’d take out (and pay taxes) on about $907,000 of RMDs and have an ending balance of about $495,000.”
Citation Stephen Silverberg: Elder Care Matters
We are working on educating the public about the most recent changes to IRA rules in 2020. Contact us at 818.340.4479 about your IRA case.
