Written by Matt Benson, CFP®
We find it helpful to highlight changes early in the year to give us ample room to plan. Whether the changes are something simple like contribution limit increases, or more nuanced, like a legislative change, we want to make sure there are no surprises. In previous years we shared that information in a table format, and I thought I would take a different approach this year. I will highlight a few specific changes, as well as provide some context to help those we work with better understand what lies ahead. Whether you are still working, retired, or thinking about gifting (or some combination of those), there should be some information here that is useful to you.
EMPLOYER PLAN UPDATES
Those of you with employer plans like 401(k), 403(b), or 457 plans now can defer up to $20,500, which is an increase of $1,000 from last year. The catch up for those over age 50 remains the same at $6,500 but it may not be a bad idea to adjust deferrals into your plan if you can do the full $27,000 in 2022. Those of you in Simple and SEP IRAs also got a bump. The Simple limit moved up $500 to $14,000 and the SEP limit is now $61,000 up from $58,000 in 2021. If you are covered by a high deductible plan and are eligible to contribute to an HSA, those limits went up a bit too. The new limits are $3,650 for an individual and $7,300 for family. HSAs have been a great way to lower taxable income and get money set aside for medical expenses. They have increased in popularity as the investment options have expanded and these accounts do not have any income limitations.
You will also see changes to Required Minimum Distributions (RMDs) for IRAs in 2022. In November of 2020 the IRS revised the Uniform Life Table used to calculate an IRA owner’s RMD, which hadn’t been done since 2002. As a refresher, when an IRA owner reaches the age of 72, they are required to take a minimum distribution out of their IRA. That minimum amount is calculated by taking their end of year balance of the previous year and dividing by the appropriate age factor on the Uniform Life Table. The changes effectively reduce the amount that needs to be withdrawn on a percentage basis. We track all this for our clients and will have updated numbers by the time you get around to reading this article.
While the lifetime gift exemption amount moved up to $12.06 million per individual in 2022, something a little closer to home is that the annual exclusion amount went up to $16,000. That means an individual can give $16,000 to anyone, remove money from their estate, have it not counted toward the lifetime limit, and satisfy a potential legacy goal. A husband and wife can do $16,000 each to the same person all without taxation or reporting requirements. As we get 2022 under way, please let us know if you have questions related to these topics or anything else for that matter. We greatly appreciate the opportunity to work with each and every one of you.
This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.