3678 / What strategies should a taxpayer consider when determining the level of distributions from retirement accounts during retirement?
The RMD rules ( Q 3682) require that taxpayers begin withdrawing funds from tax-deferred retirement accounts, such as IRAs and 401(k)s, when they reach age 73 (72 for 2020-2022, 70½ prior to 2020). The minimum amounts that must be withdrawn are calculated based on the taxpayer’s life expectancy, determined using IRS actuarial data.1
The IRS provides tables specifying the percentage of current account assets that must be withdrawn each year based on the life expectancy of the taxpayer in any given year after reaching age 73 (72 for 2020-2022, 70½ prior to 2020; tables are also available for taxpayers beginning withdrawals at younger ages). In the case of a married couple where one spouse is more than
10 years younger than the other, the joint life expectancy of the couple is used in the calculation to provide a more realistic estimate of the combined life expectancy of the couple.2
The RMD requirements are generally not meant to provide retirees with guidance on the optimal withdrawal rate, but are meant to ensure that the funds in these tax-deferred accounts are used for retirement income, rather than as estate planning vehicles. Because the requirements seek to ensure that the assets are spent during life, they are a viable alternative to the so-called “4 percent rule,” even though this was not the original IRS intent in formulating the rules.