The Ever-Changing Financial Plan
2022 brings some changes to retirement plans, IRAs, and other tax-advantaged accounts. Higher inflation in 2021 also resulted in noticeable adjustments to social security and the lifetime gift tax exclusion. We’ve compiled a list of changes to highlight some of the most crucial changes that may impact your family.
IRA Contribution Limits
While many products will change this year, IRA contribution limits remain the same in 2022. The limit remains $6,000 for those under 50 years old. Those 50 and older are permitted $1,000 in catch-up contributions. However, the income phase-out ranges moved higher. Single taxpayers covered by a workplace retirement plan can contribute the full $6,000 if their modified adjusted gross income is less than $68,000. Married couples filing jointly that are covered by a workplace plan can contribute the maximum amount if adjusted gross income is less than $109,000.
Reconsider the Roth
Roth contributions are an effective tax-planning strategy if you expect to be in a higher tax bracket in the future. However, Roth contributions are subject to an income phaseout. These income thresholds have increased for 2022. Now individuals with less than $129,000 of modified adjusted gross income can contribute the full $6,000. The threshold for married couples also jumped to $204,000 or less to contribute the maximum amount. Those 50 and over can also contribute an extra $1,000 in catchup contributions.
It's worth noting that those who did not contribute the full $6,000 to an IRA in 2021 have until April 15th to make 2021 contributions as well. These contributions are subject to the 2021 income phaseout.
Required Minimum Distributions
Americans are living longer on average, and the IRS has taken notice. The IRS revised the life-expectancy tables used to calculate RMDs for 2022. For some, RMDs may even be lower than last year. Since there is plenty of year ahead of us, it’s the perfect time to review your distribution strategy and ensure both your spending needs and required distributions will be met in 2022.
401(k) Contributions Get a Bump
Workers contributing to 401(k) plans can now contribute up to $20,500 of their income to their employer-sponsored plan in 2022, a $1,000 increase from 2021 contribution limits. The catchup contribution for workers over 50 remains $6,500 as it has since 2020.
The Standard Deduction
Many taxpayers will benefit from an increase in the standard deduction. The new standard deduction is $12,950 for individuals and $25,900 for those married filing jointly. As the standard deduction increases, the value of itemizing continues to fall for the average taxpayer. The standard deduction is even more valuable for those 65 and older, who can claim an additional $1,400 deduction. This additional deduction applies per person for those married filing jointly. Individuals over 65 can receive an additional $1,750 deduction.
Social Security Skyrockets
Social security benefits received the largest annual increase since 1982, jumping 5.9% in 2022. Inflation spiked in 2021, but those relying on their social security benefit can count on their income increasing too. It’s also worth noting that those eligible for Social Security who are not claiming will receive the adjustment on their future benefit.
While your benefit may increase, Medicare premiums will also increase in 2022. Part B premiums will increase by 14.5% in 2022, and those subject to IRMAAs can expect to pay more as well.
HSA Limits Move Higher
A health savings account can be a great tax-advantaged tool for individuals and families to pay for qualified medical expenses. Those covered by an HSA-eligible plan can now contribute $3,650 to their HSA accounts in 2022. For family plans, the limit was raised to $7,300.
Gift Tax Limits on the Rise
Those looking to gift assets to friends or family will benefit from a $1,000 increase in the annual gift exclusion limit. This brings the total exclusion to $16,000 per individual per year.
Lifetime Gift & Estate Tax Exemption
While inflation may have been the hottest topic of 2021, many will stand to benefit from programs and policies that ebb and flow with prices. The lifetime gift and estate tax exemption increased to an all-time high of $12.06 million per person and is portable between spouses.
We are here to help discuss these changes and how they may affect your planning for the upcoming year.
Contact us at 865-584-1850 or info@proffittgoodson.com