Guest blog provided by Slavic401k
2022 will have significant financial distinctions from 2021 that affect almost every retiree and retirement saver to some extent. For example, you’ll notice modifications in your tax rates and deductions, as well as changes to social security. You’ll also be able to save more money in your retirement accounts with changes to plan contributions and distributions.
Here’s a closer look at what’s changed this year and how it may affect you.
Standard Deduction Increases
Taxpayers have the option of taking a standard deduction or itemizing their deductions. Deductions reduce taxable income, resulting in lower taxes.
The usual deduction generally results in more significant tax savings than itemizing does. The majority of Americans take the standard deduction. In 2022, when you complete your federal income tax forms for income earned in 2021, married couples will get a $25,100 standard deduction, up $300 from 2020. For single taxpayers and married couple filing separately, the basic exemption amount rises to $12,950 in 2022, up $400 from $12,700.
The regular deduction for income earned in 2022 — which you can claim when you file your return in 2023 — will also increase for those who prefer to plan ahead. The standard deduction for married couples filing jointly for the tax year 2022 rises to $25,900, up $800 from 2021. In addition, the standard deduction for single taxpayers and married persons filing separately increases by $400 to $12,950 for 2022.
Retirement Plan Distributions Changes
You were eligible to claim some significant pandemic-year tax credits if you filed your 2020 tax return in 2021. You weren’t required to take any required minimum distributions (RMDs) from your tax-deferred retirement accounts, such as traditional IRAs and 401(k) savings plans. The federal government also relaxed restrictions on IRA withdrawals in 2020, allowing individuals younger than 59½ to withdraw up to $100,000 from their retirement accounts without incurring the typical 10% penalty. Furthermore, it permitted people to spread the tax on their retirement plan withdrawal over three years and have that money replaced if desired.
However, even though COVID-19 is still here, those tax cuts have vanished. Because the age at which RMDs must begin has changed from 70 ½ to 72, everyone who turned 72 after June 30, 2021, had until April 1, 2022, to take their first RMD. The final end-of-year RMDs are required by the last day of the calendar year.
For the latest updates on distribution changes, check out our FAQ page.
Retirement Plan Contributions Increases
You’ll be able to make more contributions to specific retirement plans in 2022 than you did in 2021. Retirement savers can contribute up to $20,500 to workplace accounts such as 401(k)s and 403(b)s in 2022, increasing $1,000 from 2021. Older individuals can contribute an additional $6,500 — the same catch-up contribution amount as in 2021 — for a total 2022 contribution of $27,000.
The maximum amount that can be contributed to a traditional IRA and Roth IRA in 2022 has not changed. Traditional IRAs and Roth IRAs are limited to $6,000 if you are under 50 or $7,000 for people aged 50 or older.
The easiest way to improve your financial future is to increase your retirement plan contributions. If you’re looking for ways to increase your savings, read our blog on how to maximize your retirement savings and save more in 2022.
Social Security Payout Boost
A substantial Social Security cost-of-living adjustment (COLA) raised benefits by 5.9%. It is the most significant boost since 1982 and applies to both Supplemental Security Income (SSI) payments and benefits.
The monthly payment will reach $1,948 in 2022, up from $1,813 currently. Supplemental Security Income payments will increase as well. The maximum monthly SSI payout in 2022 will be $841 for an individual and $1,261 for a couple, up from 2021.
A COLA has been extended to a few other Social Security components, as well. In 2022, the maximum monthly Social Security retirement benefit for someone retiring at age 66 will be $3,345, up from $3,148 in 2021.
Social Security Payroll Taxes Changes
Someone has to pay for Social Security, usually you or your employer. Employers and employees must each pay a 6.2% payroll tax to fund Social Security’s Old-Age, Survivors, and Disability Insurance (OASDI) program.
The tax rate, on the other hand, will not change. What will change is the maximum amount of income to which the tax applies. To learn more, read our blog about changes in Social Security.
If you have an account with Slavic401k, you can review questions related to your contributions, withdrawals, and fees here. If you have an account with another financial institution, contact them directly.