RMDs: An IRS Change is Making Them Smaller in 2022

 The way you calculate your required minimum distribution (RMD) just changed.

"The methodology of calculating your required minimum distribution (RMD) is rather simple. Your yearly RMD is calculated using a formula based on the IRS’ Uniform Lifetime Table. Basically, this table estimates the maximum number of years (also known as distribution periods) your retirement account may need to make RMDs to you and your surviving spouse" writes CFP Chris Gullotti, for Kiplinger's. 

"Your distribution period gets shorter every year, based on your age. For example, if you take your first RMD in 2022 at age 72, your distribution period is 27.4 years." When you turn 74 it will be 25.5 years . When you turn 80 it will be 20.2 years, etc.  

The RMD amount is based on the value of your retirement accounts at the end of the previous year. "Say your IRA was worth $500,000 at the end of 2021 and you’re turning 72 in 2022. The IRS distribution period for 72-year-olds is 27.4 years. So, if you divide $500,000 by 27.4 years, you get $18,248. That’s what your RMD for 2022." 

"With 401(k) plan accounts... most plan providers will calculate your annual RMD and make the distribution on your behalf."

"With other accounts you have more flexibility, and thus more options to consider. For example, if you have several traditional or rollover IRAs, you first need to calculate the RMD for each individual account. Many IRA custodians will do this for you. The challenge comes when you decide how much to withdraw from each account."

• You can take separate RMDs from each account.
• You can take the total combined RMD from one account.
• Or you can withdraw different amounts from several accounts that, when combined, add up to the total RMD amount.

"Or, you might want to consolidate all of your various IRA and 401(k) accounts into a single rollover IRA with a custodian that calculates your RMDs for you."

"Another option: You may fulfill your annual RMD requirements without having to pay taxes on them by making a qualified charitable distribution of the RMD directly from your IRA custodian to a qualified public charity."