Tax laws and contribution limits are constantly changing, so it’s essential to keep abreast of new developments each year. Understanding how new tax laws affect you can help you estimate your tax burden in retirement.

Tax Law Updates in 2022

There are a few tax law updates to keep in mind going into 2022, including an increase in the standard deduction, alternative minimum tax, annual gift exclusion, and more. Let’s dive right in!

Standard Deduction Increase

In 2022, the standard deduction increases to $12,950 for single filers and individuals who are married but filing separately $19,400 for heads of household, and $25,900 for those who are married and filing jointly.

Alternative Minimum Tax Exemption Amount Increase

The Alternative Minimum Tax exemption amount increases to $75,900 and begins to phase out at $539,900 in 2022.

Annual Gift Exclusion Increase

If you plan to give away money in 2022, the annual gift exclusion will increase to $16,000. This means you don’t have to report gifts under $16,000 to the IRS.

Plan to give more? Don’t worry! You can tap into your lifetime exclusion, which is increasing to $12.06 million starting January 1, 2022…maybe.

Tax Bracket Increases

Tax brackets increase each year based on inflation and other factors. In 2022, the tax rate is:

• 12% for incomes over $10,275 or $20,550 for married couples filing jointly
• 22% for incomes over $41,775 or $83,550 for married couples filing jointly
• 24% for incomes over $89,075 or $178,150 for married couples filing jointly
• 32% for incomes over $170,050 or $340,100 for married couples filing jointly
• 35%, for incomes over $215,950 $431,900 for married couples filing jointly

…maybe.

Retirement Savings Contribution Limit Adjustments

In 2022, retirement savings contribution limits have been adjusted for several types of accounts.

401(k), 403(b), most 457 plans

For 401(k), 403(b), most 457 plans, the annual contribution limit raised to $20,500. For IRA plans, the contribution limit remains the same at $6,000.

Traditional IRAs

Contribution income phase-out ranges are also slightly different in 2022. For traditional IRAs, the income phase-out range to make a deductible contribution for individuals covered by a workplace plan is $68,000 to $78,000 for single filers, $204,000 to $214,000 for individuals who are married and filing jointly, and $0 to $10,000 for individuals who are married and filing separately.

Roth IRAs

Roth IRA contributions also have an income phase-out range. In 2022, the income phase-out range is $129,000 to $144,000 for single filers and heads of household, $204,000 to $214,000 for individuals who are married and filing jointly, and $0 to $10,000 for individuals who are married and filing separately.

Saver’s Credit

In 2022, the Saver’s Credit income phase-out range is $20,500 to $34,000 for single filers and individuals who are married and filing separately, $30,750 to $51,000 for heads of household, and $41,000 to $68,000 for married individuals filing jointly. 

SIMPLE IRAs

The SIMPLE IRA contribution limit also increases in 2022 to $14,000.

Maximizing Your Retirement Savings

In 2022, as in years past, it’s a good idea to max out your retirement savings contributions if possible. Not only will this likely result in a tax break for pre-tax retirement contributions, but it’s also an excellent way to keep growing your wealth as you near retirement. 

Since you’re nearing retirement, the more you can save for your ideal retirement lifestyle, the better.

If your goal is to max out your retirement accounts this year, you can contribute up to $20,500 in your 401(k) and $6,000 in a traditional or Roth IRA. For those 50 or older, you can also take advantage of catch-up contributions and put away an extra $6,500 in your 401(k) and $1,000 in an IRA.  

If you’re still a few years away from retirement, contributing as much as you can to your retirement savings can have an even more significant impact. Through the power of compound interest, you can increase your net worth and make sure that you’re cultivating a sizable nest egg.

Staying Up to Date on Recent Changes

It’s always a good idea to stay updated on any recent changes to tax law or contribution limits. Doing so can help to ensure that you’re contributing the correct amounts to your retirement plans and setting yourself up for financial success.

That said, don’t spend your time stressing over financial legislation. Our team is on top of the changes and is ready to help you implement them in the best ways for you. 

The Bottom Line

There are a few critical tax and retirement savings updates to keep in mind as we head into 2022. 

Staying up-to-date with the latest updates from the IRS can help to ensure that you’re implementing a successful retirement savings strategy. If you’re nearing looking for advice, we’d love to help. Get in touch with us today to learn more about our services!