What the average investor may not know is that when it comes to doing the retirement savings math on life expectancy and required minimum distributions (RMDs), one size does not fit all. There are actually three different life expectancy tables that should be used:
The first life expectancy table is the Single Life Expectancy Table, used specifically for the beneficiaries of inherited IRAs). This table generates the largest RMDs.
The second life expectancy table is the Joint Life Expectancy Table: Used only by account owners when a spouse is ten or more years younger and the spouse is the sole beneficiary of the IRA. This table yields the smallest RMD of all three tables.
Most people will use the third table, the Uniform Lifetime Table. This table is never used by a beneficiary, it is used for those who are married to a spouse who is within ten years of age.
If you use the wrong table and take out too much, it will deplete your retirement account and increase your tax bill. But if you take out too little, the penalty is 50%, which is obviously a significant and potentially very costly hit. Your financial advisor should be able to walk you through these tables in more detail, or you can find them at IRS.gov for easy reference.