New life expectancy tables are being used to determine required withdrawals from IRAs and 401(k) plans. It's important to understand the changes.

• Generally, using the new tables should be straightforward for most retirement account owners.
• This year, there are a few tricky situations.
• Here are the details.

Be mindful that the calculation for annual required withdrawals from retirement accounts has been altered, typically to your benefit.

Starting this year, new IRS life expectancy tables are in use to calculate required minimum distributions (RMDs). These tables should be easy to use for most account owners and result in a lower RMD compared to the previous tables.

Yet there are some things to watch for.

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Ed Slott, CPA and founder of Ed Slott and Co., stated that this year will only see a couple of tricky situations.

RMDs are applicable to various retirement plans, including 401(k)s, Roth 401(k)s, and Roth IRAs, among others. Unlike Roth IRAs, traditional 401(k)s and Roth 401(k)s require mandatory withdrawals after the account owner's death.

Individuals who turned 70½ before the Secure Act's implementation in 2020 were required to take RMDs. However, for those born on or after July 1, 1949, RMDs start at age 72.

The IRS's new tables suggest that you may need to withdraw less each year because they assume you will live longer.

Slott stated that they add approximately one to two years to your life expectancy.

Using the new uniform life table, a 75-year-old would use a factor of 24.6 to calculate their required minimum distribution (RMD). If the account balance is $500,000, dividing the amount by that factor would result in an RMD of approximately $20,325.

The factor for a 75-year-old under the old table was 22.9, which translates to $21,834 for a $500,000 account.

Anyone who turned 72 in the second half of last year must be careful about their RMD age.

In the first year of RMDs, the required withdrawal can be postponed until April 1 of the following year, resulting in two RMDs in one year. If you choose to delay your 2021 RMD, make sure to use the correct account balances and life expectancy tables.

Your 2021 RMD will be determined using the old life expectancy tables and the account balance on December 31, 2020. Your 2022 RMD will be calculated based on the new tables and the balance at the end of 2021.

For inherited retirement accounts

For inherited IRAs, calculating RMDs is handled differently.

If the original account owner of an IRA died in 2020 or later, most beneficiaries can no longer stretch out their withdrawals over their own lifetime (known as a stretch IRA).

Beneficiaries must withdraw all assets from the inherited account by Dec. 31 of the 10th year after the account owner's death, unless an exception applies.

If the beneficiary is not a surviving spouse, a minor child of the account owner, a disabled beneficiary, or one who is not more than 10 years younger than the original account owner, they cannot stretch out payments based on their life expectancy.

Slott stated that beneficiaries who inherited an account before 2020 and were utilizing the stretch provision can still do so.

The method for determining your RMDs from an inherited account differs, and spouses have several options. In the first year, you use the factor for your age in the single life table. In the next year, you subtract one from the original factor, and then continue subtracting one in each subsequent year.

Determine the factor in the single life table for the age you began taking RMDs and subtract one for each year that has elapsed.

Slott stated that the new table was considered effective when the account was inherited, but it does not impact the RMDs that have already been taken.

You continue reducing your factor by one each year after you reset.