Notable Financial and Retirement Planning Changes in 2022
2021 will not be fondly remembered by everyone due to the ongoing pandemic, yet, for most, it was an improvement from the government enforced lockdowns of 2020. Effective with the beginning of 2022, there are numerous tax and regulatory changes worth noting, and we highlight changes made to retirement plan contributions, Social Security benefits, and Medicare below.
For those eligible to contribute to a workplace retirement plan such as a 401(k) or 403(b), the maximum contribution limit has been raised by $1,000, to a total of $20,500 in employee contributions. The catch-up contribution for those over age 50 remains at $6,500. While an additional $1,000 per year may not seem like much, at an annual return of 7% it would grow to $188,632 for those who start in their mid-twenties and retire at full retirement age (67). While not everyone can maximize their contributions, it is important to save what you can, as money saved in these plans may reduce current year taxable income and allow for tax-deferred growth.
Along with higher retirement plan contribution limits, another change to reduce taxable income is the standard deduction for 2021 and 2022. In 2021, the standard deduction for a married couple increased by $300 to $25,100 ($12,550 for single filers) and in 2022, this rises to $25,900 for a married couple filing jointly ($12,950 for single filers). While this is beneficial for those taking the standard deduction, the 2021 tax break that allowed Americans to write off cash donations to charity (up to $600 per married couple) was temporary and now it is gone. Going forward, as it was before 2021, to receive a tax deduction for donations to charity you will need to itemize.
Social Security benefits are rising by 5.9% in 2022, the largest increase since 1982. This also applies to disability and Supplemental Support Income. While those who receive increased benefits may welcome them, for many this Cost-of-Living Adjustment will not result in more money in their pockets as higher inflation rates in the U.S. may offset any gains. Also due to inflation- the standard Medicare Part B premium costs will be rising by $21.60 a month, the largest in the health insurance program’s history. Medicare Part B covers doctor visits, outpatient services such as lab tests and screening. Other changes will be addressed as we collaborate individually with clients on their financial, retirement, and income planning.
As always, if you have any questions about the upcoming changes, or need assistance in any manner, please know we are available at your convenience.