As we close the book on 2021 and look forward to a new year, there are some noteworthy changes for 2022, and also a few things that will stay the same, as it pertains to our financial lives. Traditional and ROTH IRA contribution limits remain at $6,000 ($7,000 if age 50 or better) for 2022. However, the income limits have increased for in- dividual and joint tax filers in qualifying for ROTH funding eligibility and for the tax deductibility of Traditional IRA contributions. Now is a good time to review savings rates and make sure adequate contributions are being made to realize long-term financial goals. For 401(k), 403(b) and 457 accounts, salary deferrals of up to $20,500 per year can be made, an increase of $1,000 from previous years. For these plan types, account holders age 50 or older may contribute an additional $6,500 as a “catchup” contribution. If your employer offers a SIMPLE IRA plan, contribution for the new year increase by $500 for a total allowable employee contribution of $14,000 with an additional “catch-up” provision of $3,000 for those ages 50 and better. Additional plan limit increases can be found on the IRS website at www.irs.gov/retirement-plans/cola-increases- for-dollar-limitations-on-bene- fits-and-contributions. Now is a good time to review your contributions and consider increasing your contributions to take full advantage of these limits. There are also changes for retirement account owners that need to take yearly required minimum distributions (RMDs). Effective in 2022, there is an updated “Life Expectancy Table”, essentially re- flecting an increase in life expectancies. All else being equal, these updated life expectancy tables will decrease the required minimum distribution amounts. However, retirement account holders will be a year older next year, coupled with changes in underlying retirement account balances, one should consult with their retirement account custodian to work in taking the required minimum distribution in the year ahead.
Moving forward into 2022, the approximately 70 million recipients of social security will receive a 5.9% increase in payments. This is the largest percent increase in benefits since 1982 1 . This cost-of-living adjustment is calculated based on the cost of goods and services increasing (inflation).
Health Savings Account (HSA) limits are increasing2 for the new year with individual plan HSAs allowing for a $3,650 contribution and family plan HSA coverage at $7,300. Additional catch-up contributions of $1,000 are also allowed for those age 55 or older. HSA contributions are only permitted for certain taxpayers with qualifying high deductible health care insurance. Not only do HSA contributions allow for valuable savings to cover health care related expenses, it also affords taxpayers an “above-the-line” tax deduction.
Now is a good time to prepare to get 2022 started off on the right foot. By reviewing your current savings and investment plan, reviewing your budget and making the necessary adjustments, you are better preparing for a financially sound future.
Adam Smit is a CERTIFIED FINANCIAL PLANNER™. Tax preparation services are not offered at Adam Smit Investment Management LLC and cus- tomers should seek specific tax guidance from a qualified tax advisor. This article is for general information only and not intended to provide specific advice or recommendations. Securities offered through LPL Financial. Member FINRA/ SIPC.
1 – www.ssa.gov/cola/ 2 – www.irs.gov/pub/irs-drop/rp-2125.pdf
BY ADAM SMIT