While this may not happen often, 2022 brought some GOOD news from the Internal Revenue Service (IRS). The IRS issued new required minimum distribution tables for 2022. A required minimum distribution (RMD) is applicable to qualified tax-deferred investment accounts such as Individual Retirement Accounts (IRAs), 401(k)s, and 403(b)s. Note that Roth IRAs are not included as they are tax-free accounts.
The new RMD distribution tables show that the IRS has lengthened life expectancies. Longer life expectancies lead to increased distribution periods and smaller RMDs. The result is an effective tax cut for high-net-worth individuals who do not need their full RMD. This is good news for those who have brokerage accounts, Roth IRAs, and other sources of income and do not need their annual RMDs to support their lifestyle.
At first glance, the IRS seems to have extended life expectancies by two years. For example, according to the old table, the distribution period at age 70 was 27.4, which is now the distribution period at age 72. However, the distribution periods were not actually made two years longer across the board. The distribution period increase at age 72 is 7% (25.6 – 27.4), at age 85 is 8.1% (14.8 – 16), and at age 95 is 3.5% (8.6 – 8.9). After that, the increase is relatively small until age 110 at which time they deviate more drastically.
To calculate your RMD, find the opening account balance for the year and divide that by the distribution period for your age. Make sure your RMD does not fall short because there is a 50% penalty tax on the undistributed amount. Your RMD will get larger as you age and your life expectancy and distribution period decrease.
Current regulations require RMDs to be taken annually, and the first distribution must begin by April 1 in the year after you turn age 72. You do not have to take a distribution in the year you turn 72, but you are required to take a distribution for the year you turn 72. That means you can wait until March 31 in the year you turn age 73 to take your first distribution, but that also means you will have to take two RMDs that year: one for age 72 and one for age 73. After the first year, all distributions must be taken by December 31.
It may be tempting to defer your first RMD so that you can defer the payment of tax. It is prudent to defer the payment of tax unless you can pay a lower rate in low-income years. Doubling your RMD in the year you turn age 73 may not be beneficial though because it may push you into a higher marginal tax bracket. This is particularly true for Americans living in Canada because distributions from IRAs and other qualified accounts are fully taxable in Canada and the Canadian tax brackets are more condensed than the U.S. tax brackets.
Tax planning for U.S. citizens and expats living in Canada can get quite complex and requires the expertise of an advisor who is a Canada-U.S. specialist. Cardinal Point Wealth Management is the industry leader in Canada-U.S. wealth management. We offer comprehensive financial planning, tax planning, and individualized investment management services. Contact us today to discuss how cross-border tax planning and wealth management can be beneficial for you and your loved ones.
2022 IRS Table lll
| Age | Distribution Period | Age | Distribution Period |
| 70 | 29.1 | 93 | 10.1 |
| 71 | 28.2 | 94 | 9.5 |
| 72 | 27.4 | 95 | 8.9 |
| 73 | 26.5 | 96 | 8.4 |
| 74 | 25.5 | 97 | 7.8 |
| 75 | 24.6 | 98 | 7.3 |
| 76 | 23.7 | 99 | 6.8 |
| 77 | 22.9 | 100 | 6.4 |
| 78 | 22 | 101 | 6 |
| 79 | 21.1 | 102 | 5.6 |
| 80 | 20.2 | 103 | 5.2 |
| 81 | 19.4 | 104 | 4.9 |
| 82 | 18.5 | 105 | 4.6 |
| 83 | 17.7 | 106 | 4.3 |
| 84 | 16.8 | 107 | 4.1 |
| 85 | 16 | 108 | 3.9 |
| 86 | 15.2 | 109 | 3.7 |
| 87 | 14.4 | 110 | 3.5 |
| 88 | 13.7 | 111 | 3.4 |
| 89 | 12.9 | 112 | 3.3 |
| 90 | 12.2 | 113 | 3.1 |
| 91 | 11.5 | 114 | 3 |
| 92 | 10.8 | 115 and over | 2.9 |
Old IRS Table lll
| Age | Distribution Period | Age | Distribution Period |
| 70 | 27.4 | 93 | 9.6 |
| 71 | 26.5 | 94 | 9.1 |
| 72 | 25.6 | 95 | 8.6 |
| 73 | 24.7 | 96 | 8.1 |
| 74 | 23.8 | 97 | 7.6 |
| 75 | 22.9 | 98 | 7.1 |
| 76 | 22 | 99 | 6.7 |
| 77 | 21.2 | 100 | 6.3 |
| 78 | 20.3 | 101 | 5.9 |
| 79 | 19.5 | 102 | 5.5 |
| 80 | 18.7 | 103 | 5.2 |
| 81 | 17.9 | 104 | 4.9 |
| 82 | 17.1 | 105 | 4.5 |
| 83 | 16.3 | 106 | 4.2 |
| 84 | 15.5 | 107 | 3.9 |
| 85 | 14.8 | 108 | 3.7 |
| 86 | 14.1 | 109 | 3.4 |
| 87 | 13.4 | 110 | 3.1 |
| 88 | 12.7 | 111 | 2.9 |
| 89 | 12 | 112 | 2.6 |
| 90 | 11.4 | 113 | 2.4 |
| 91 | 10.8 | 114 | 2.1 |
| 92 | 10.2 | 115 and over | 1.9 |