RMD Tables and QCD Changes in IRS Publication 590-B Release - The Discerning Investor (2024)

Readers were looking for newly adopted tables for 2022 RMDs -- they are now finally available in official format in Appendix B of the publication. Be sure to use the link I've provided above. You also can go to the IRS website (IRS.gov) and search for "590-B" in the Forms and Instructions section. Or call 1-800-TAX-FORM (829-3676) to order the publication.

My November 2021 column ("We're Not Done With RMD Changes") noted that, according to the Nov. 12, 2020, Federal Register (tinyurl.com/493tu8p4), the RMD tables were being updated to "generally reflect longer life expectancies."

Three tables are updated: Single Life Expectancy (for IRA beneficiaries); Joint Life and Last Survivor Expectancy (for owners whose spouses are more than 10 years younger and sole beneficiaries of their IRAs); and Uniform Lifetime (for unmarried owners, married owners whose spouses aren't more than 10 years younger, and married owners whose spouses aren't sole beneficiaries of their IRAs).

How much of a change is involved? Here's an example involving "Fred," who is 80 years old and uses the Uniform Lifetime Table for determining his RMDs. The divisor used to calculate RMDs has changed for an 80-year-old from 18.7 (in the old table) to 20.2 (in the new table). In general, if the divisor goes up, the amount of RMD goes down. If Fred had an IRA balance of $600,000 at the end of 2021, his RMD for 2022 would be $29,703. If the old table were still in effect, Fred's RMD amount would be $32,086, a difference of more than $2,300.

Another important change in the publication relates to qualified charitable distributions (QCDs), which I wrote about in early February ("Mixing QCDs and IRA Contributions"). As a reminder, a QCD involves a direct transfer from an IRA trustee to a qualified charity and often is used to offset an RMD from an IRA. For more details, see tinyurl.com/2p9ycs83 or Publication 590-B.

The draft version of Publication 590-B that had been released in January contained a worksheet for calculating how deductible contributions to IRAs after age 70 1/2 could bring adjustments to a person's QCD. The change involving deductible IRA contributions came when the Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law at the end of 2019. The QCD worksheet contained an error that was corrected in the final version.

The final version also provides a more detailed picture of how deductible IRA contributions can affect the amount of QCD that can be excluded from gross income on a tax return for a given year.

Those taxpayers who have made or are considering making QCDs should read through Pages 14 to 16 of the final Publication 590-B, especially the "Offset of QCDs by amounts contributed after age 70 1/2" section, which features the example of "Jim" and some sample worksheets. The worksheets show how the calculations involving QCDs and deductible IRA contributions are done over a two-year period.

The release of 590-B brings up an important reminder: Whether it be RMDs, QCDs or deductible contributions to an IRA, always be sure to consult with your tax adviser before acting, especially in this time of change.

A reader, V.S., emailed me a few days ago to say: "I'd like to know where to get financial advice from. I know I need to seek out a fiduciary; however, everyone tells me they are one."

As someone who started her Wall Street career as a lawyer, I do have an answer on how to tell who is -- and is not -- a fiduciary.

I also have an insider's perspective on the investment advisory industry as the head of a fiduciary investment advisory boutique. I should have an easy answer for V.S. on where to get financial advice.

But I don't.

V.S., who is in her 50s, added: "I don't really know who to start with. ... I think I will never be able to retire fully. ... I am a little intimidated to take risks with my money because I'm afraid to lose any."

I understand fully. Even if you were to discount the downdraft that the broad market is experiencing now, ignore geopolitical unrest and the Russian invasion of Ukraine, as well as rising inflation in the U.S. at levels not seen since 1982 (tinyurl.com/yp52m5e4), whom could I recommend someone in V.S.'s position interview?

There is a vast field of fiduciary firms to access. To give you some context, there are 13,880 investment advisory firms regulated by the U.S. Securities and Exchange Commission, according to the 2021 Investment Adviser Industry Snapshot (tinyurl.com/mpsnskxh). There are thousands more that don't meet the SEC's size registration requirements; these firms are regulated by the individual states. That's the fiduciary playing field.

Close to 6 out of 10 of the SEC-registered investment advisers managed money for individuals in 2020 for close to 61 million clients. Hundreds of thousands of financial professionals wear two hats: one hat when acting as "investment adviser representatives," and another when acting as stockbrokers (registered representatives of brokerage firms). The fiduciary hat applies when acting as an investment adviser representative.

And, of course, thanks to new disclosure rules, we now have Form CRS to guide us on how to compare one firm to another, along with a list of "conversation starters" to ask the financial professional. (If you didn't see my column last week on Form CRS, email me; I'll send you a copy.)

Then there is BrokerCheck (tinyurl.com/5b8edfsv). Operated by FINRA, the Financial Industry Regulatory Authority, which regulates the brokerage industry, it can be used to find more details about firms and their individual representatives. BrokerCheck provides information about both investment advisers and broker-dealers.

The SEC's Investor.gov (tinyurl.com/2p82nmzb) and FINRA's Learn to Invest (tinyurl.com/56hdrd9w) also offer helpful insights.

This is all about the homework necessary to, again, compare and contrast one firm with another. That's the normal process one would go through to understand the differences in services.

But, where do you start the search?

The bottom line is this: Large firms that serve the vast retail market you can find easily -- they advertise. Niche fiduciary firms that specialize on the more complex needs of high-net-worth individuals are not visible in the same way. (Full disclosure: As an example, clients of my firm are introduced to us by their accountants, lawyers or other clients.)

To follow that example, high-net-worth individuals might ask their accountants or lawyers for a few names to interview. (But be sure to do your due diligence using Form CRS before choosing a firm.)

At the other extreme, someone with limited resources could turn to a nonprofit for help. For example, the Foundation for Financial Planning (ffpprobono.org/) is a nonprofit organization "dedicated to expanding access to pro bono financial planning for people in crisis or need." The foundation offers a "Navigating Your Financial Roadmap" workbook (tinyurl.com/yvr6yhrm) to help you assess your financial situation.

Someone in between these two extremes might do an internet search. Blogs and matching services do exist. Just be sure to check if the adviser pays a fee to be listed with a referral service. That would be a disclosable conflict of interest. Be sure to check Form ADV Part 2A and Form CRS.

Are you comfortable that the services your financial professional provides you are those that you expect? Making sure that you are in sync with your financial service provider is the goal of Form CRS, the disclosure document that the U.S. Securities and Exchange Commission adopted in 2019.

Individual investors will be grateful to know that regulators are pursuing financial firms that are not meeting Form CRS rules. The SEC recently announced actions against six investment advisers and six broker-dealers. Another 30 financial firms were pursued, and later settled, in 2021. (See the SEC's Feb. 15 release at tinyurl.com/ya4e3bhu.)

Why do investors need Form CRS?

Without it, it is very difficult for an investor to understand how to assess brokers, advisers and the firms they work for.

With it, a "retail investor" (that's you) is able to easily assess the services and conflicts of his or her own financial firm and to compare that firm to others. After all, the CRS is user-friendly and just two pages long (four pages if the firm is a "dual registrant" -- regulated as both a registered broker-dealer and an investment adviser).

If you are wondering if you ever received a CRS, the first CRS was due to be delivered to you in June or July of 2020. Some of the firms that have been pursued by the SEC failed to get the CRS to its customers until much later. If you have not read your financial firm's CRS, you can solve that problem by going online to the firm's website. Each firm is required to post its CRS for you to access easily.

You can also find it by going to BrokerCheck (tinyurl.com/5b8edfsv), which is operated by FINRA, the Financial Industry Regulatory Authority. FINRA regulates the brokerage industry, but you can search for broker-dealers and investment advisers at BrokerCheck.

The CRS can also be called a Relationship Summary. For example, look at Vanguard's CRS for its brokerage firm and its investment advisory firm at tinyurl.com/ye25uj6y.

Also look at Vanguard's answers to "conversation starters" -- questions that are embedded in the CRS for you to ask your financial professional. Vanguard's answers for its brokerage services are at tinyurl.com/2p543s68, and the answers for its investment advisers are at tinyurl.com/zwxdwndy (personal adviser) and tinyurl.com/yckjvuf5 (robo-adviser).

I recommend that you spend some time with each set. Then, check out the firm you use. The goal is to compare and contrast firms.

In the latest set of SEC cases, the 12 firms, without admitting or denying the findings, agreed to be censured and to pay a civil penalty, with the amount ranging from $10,000 to $25,000, although one firm agreed to a civil penalty of $97,523.

In another case, a Georgia broker-dealer "filed its Form CRS and delivered Form CRS to its existing retail investor customers on March 30, 2021. Moreover, the Form CRS ... failed to include certain language and information specified in the Instructions to Form CRS and required by Rule 17a-14. On or about December 13, 2021, [the firm] filed an updated Form CRS with additional information and language ... and delivered [it] to existing retail investor customers on December 17, 2021." The firm agreed to pay a civil penalty of $10,000.

The reason to read your firm's CRS is simple, quoting an SEC Investor Bulletin issued in August 2020 (tinyurl.com/dhf7c6up): "It is important to make sure your financial professional provides the services you expect. In order to help you, the retail investor, understand the differences between brokers and advisers -- including, for example, the services they offer and the fees they charge -- SEC rules require them to provide you a [Form CRS]."

I am a strong supporter of understanding how to invest wisely. The foundational piece of knowledge is understanding the type of firm you engage to invest with. If you haven't read your firm's CRS, now is a good time to do that. In fact, I can't think of a single good excuse to put that off.

If you would like to communicate about what you find, take a moment to complete this quick survey at tinyurl.com/2p9xzcjh or email me at readers@juliejason.com.