Bad timing?

In November 2020 the IRS published new RMD tables in response a 2018 Trump executive order directing it to do so. RMDs are required minimum distributions – the amounts owners of IRAs, 401(k)s, 403(b)s, and so forth must withdraw from the accounts and pay tax on – when they reach the magic age (now 72 for most people under the SECURE Act).

The new tables will be a boon to me personally when I am required to starting taking RMDs next year. My calculations indicate it will be reduce my first RMD by about 7%, saving several thousand dollars in federal and state income tax per year. (I’m holding my IRA to pass on to my kids, so the longer I can defer tax, the better.) That is so because life expectancy had been increasing, so the RMDs are stretched over longer periods on average. That, of course, is why the Trump administration ordered them up – to cut taxes on old people like me.

BUT that was then (2018 when the executive order was issued or pre-COVID-19) and now life expectancy is down. The CDC has estimated that COVID-19 has caused a decline in life expectancy of about a year, while others estimate (UCLA paper) the decline could be two years. That’s life expectancy at birth and for RMD tables, the crucial issue is life expectancy at ages older than 71. Since COVID-19 has disproportionately affected the elderly, one would guess that the drop off is even large for that cohort. Nothing leaped out to my amateur eyeballing of the CDC’s 2019 and 2020 (provisional) tables, though.

Of course, this may be a temporary phenomenon, if (and that is a big if) nearly everybody gets vaccinated, the virus doesn’t thwart that by mutating, and so forth. Things may return to normal or not.

In any case, the new tables were out-of-date before they were published in November. Moreover, putting out new tables was a low priority, in my view. A non-priority really. Trump’s executive order characterized doing so as “Strengthening Retirement Security in America” (its title) – that is bogus. RMDs compel people who largely don’t need their retirement money to start paying tax on it. The vast majority of retirees face the opposite problem – how much can I safely take out to avoid running out of money? Putting out more generous RMD tables benefits people like me who use the accounts’ tax deferral as an estate planning tool. It’s safe to say that the old tables would not cause anyone to prematurely empty their retirement accounts and end up eating cat food in old age.

SALT angle. The new RMD tables automatically reduce state income tax revenues, of course. I’m sure MMB has incorporated that (modest) effect in the estimates for the February forecast.