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Coming in the New Year: Lower Required Minimum Distributions from Retirement Plans

Posted December 2021

Beginning in 2022, mandatory distributions from a regular IRA or employer-sponsored retirement plan will be reduced. This is the amount, subject to certain exceptions, that an owner must withdraw each year upon reaching the age of 72. Previously, the age at which required minimum distributions began was 70½.

Here is a comparison of the percentages, at sample ages, of the account balance that must be withdrawn in 2021 and 2022.

Age 2021 2022
75 4.37% 4.07%
80 5.35% 4.96%
85 6.76% 6.25%
90 8.78% 8.20%

Keep in mind that this is not the amount that you can withdraw but is rather the amount that you must withdraw. You can withdraw more if needed for living expenses or special needs.

If you plan to withdraw each year only the minimum amount required, the new withdrawal schedule will affect you in the following ways:

  • It is less likely that you will exhaust your retirement-account balance before the end of your life. To keep that from happening as a result of longer life expectancies was the primary reason for the new table.
  • You will pay tax on distributions at a lower rate.
  • There will be a larger end-of-life balance, leaving more that could be given to heirs or charities by beneficiary designation.

Certain things are unaffected by the new mandatory distribution table, namely:

  • There are no mandatory distributions to the owner of a Roth IRA, and distributions are not taxed whether to the owner or beneficiaries.
  • If you have a regular IRA and you do not need all of the mandatory distributions, you can authorize your account administrator to transfer money directly from your IRA to one or more public charities—except a donor-advised fund or supporting foundation. The total amount you can transfer in any year is $100,000. The amount transferred (known as a “qualified charitable distribution”) counts towards your mandatory distribution and is not subject to income tax.
  • If you wish to make an end-of-life gift to us, the most tax-efficient way to do this may be to name us as a beneficiary of all or a percentage of the account balance. The amount distributed to us is not subject to income tax because we are tax-exempt, whereas distributions from a retirement account (other than a Roth) would be taxable if given to heirs. For that reason, donors often make legacy gifts with retirement-plan assets and give other nontaxable assets to family members.

For information on how to arrange any type of gift from a retirement fund, please contact us.

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