Living Longer, Extending Assets

To reflect many Americans’ longer lifespans, the IRS has revised the life expectancy tables for minimum required distributions for Individual Retirement Accounts. A minimum required distribution is the amount an account owner is required to withdraw beginning at age 72, and also some beneficiaries when they inherit an IRA.

Three changes flow from the revised schedule:

• Minimum required distributions will be incrementally less than in years’ past beginning in 2022 to stretch the distribution period to cover the owner’s or beneficiary’s longer lifespan.
• Smaller required minimum distributions leave more assets in IRA accounts; the remainder can then continue to potentially grow tax deferred.
• For those who wish to distribute the smallest amount possible, the new required minimums offer some relief.

The revised data is available in the “Life Expectancy Tables” brochure found below in the Resources box. The new calculations affect all distributions required to be taken on or after January 1, 2022 for IRA owners and some beneficiaries.

The IRA Owner: An Example

This is an example that will show how the revised life expectancy projections will affect individual IRA owners. Under the previous IRS Uniform Lifetime Table, a 73-year-old individual had a life expectancy factor of 24.7 years. Under the revised IRS Uniform Lifetime Table, a 73-year-old now has a life expectancy factor of 26.5 years. That’s an increase of 1.8 years.

If the 73-year-old had an IRA balance of $100,000 in 2021 and a life expectancy factor of 24.7 years, he or she would have been required to take a minimum distribution of $4,048.59. In 2022, with the same IRA balance and a life expectancy factor of 26.5 years, the minimum required distribution would be $3,773.59. This is a reduction of $275, an amount that can continue to potentially grow tax deferred.

Retirement Plan Contributions: What’s Increased? What’s Changed?

Here’s a quick rundown on some key 2022 cost-of-living adjustments for retirement plan contribution limits:

• Traditional and Roth IRAs – unchanged; $6,000 contribution limit plus a $1,000 catch-up for those at age 50+. 

• SEP IRA, Money Purchase and Profit-Sharing Maximum Contribution – increased; maximum contribution amount is now $61,000.

• 401(k), 403(b) and 457 – increased; maximum salary deferral is now $20,500 with additional $6,500 for those age 50+. 

• SIMPLE IRA – increased; employee maximum salary deferral is now $14,000 with additional $3,000 for those age 50+. 

• Defined Benefit Plan Maximum Annual Benefit – increased to $245,000. 

• HSA contributions limits – increased; $3,650 for individuals, $7,300 for family, with additional $1,000 for those age 55+.

For additional information and specifics on retirement plans not mentioned, please refer to the information sheets in the Resources box. 

Contact Suzanne Rismiller at suzanne.rismiller@opco.com or 713-650-2054 to discuss your financial plan, including changes to required minimum distributions and the new 2022 IRA and retirement plan contribution limits.

Happy New Year!

RESOURCES

• New Life Expectancy Tables for 2022: An ExplanationOpens in a new window
• Life Expectancy Tables (IRS Uniform Lifetime Table)Opens in a new window
• 2022 Retirement Plan Contribution LimitsOpens in a new window
• 2022 Traditional and Roth IRA Contribution Limits