Personal finance never stays the same. You need to know what’s changed in 2022 so you can do your best planning. Let’s keep it short and sweet (as if that’s possible in finance!).
Giving Money Away!
You can give anyone $16,000 a year without paying gift tax. That’s a thousand dollars more than last year. Use that for giving to kids, grandkids, sisters, brothers, parents. People. If you give to charities, the thresholds are higher. No changes to those from 2021.
If you give from your IRA and are over age 70½, you can still give up to $100,000 to a qualified charity (not a Donor Advised Fund).
Standard deductions for income tax inched up. If you’re single, now you can deduct $12,950. Married filing jointly, $25,900. If you want to itemize deductions, you have to get over those thresholds. New brackets by income level are included in this 2022 Tax Cheat Sheet.
Download the 2022 Tax Cheat Sheet
The amount you can give away during life or at death without paying gift or estate tax also crept up. Now it’s $12.06 million per person. So as a couple, that’s $24.12 million. Most of you won’t have that, but if you do, you want to think about some planning before 2025 when that exemption drops in half (approximately).
Retirement Plan Contributions
If you are putting away money in retirement plans, there are some changes to what you can contribute.
Traditional and Roth IRAs:
OK. I lied. No changes here. The amount is still $6,000 with a $1,000 catch-up if you’re over age 50.
But, if you are making deductible contributions to a traditional IRA, there are some threshold changes. If you don’t participate in a company retirement plan and neither does your spouse, deductions are phased out completely if you earn more than $214,000.
If you do participate in a company retirement plan, deductions will be completely phased out for singles with income over $78,000 and for MFJ $129,000.
For Roth IRAs, singles can contribute as long as income is under $144,000 and MFJ at $214,000.
SEPs and SIMPLEs:
If your employer is funding the plan, they can contribute up to 25% of your salary (up to $305,000) or $61,000, whichever is less. If you are a sole proprietor, you can contribute up to 20% or $61,000, whichever is less.
In a SIMPLE plan, employees can contribute up to 100% of salary up to a max of $14,000. Catch-up contributions are still $3,000.
The contribution can be up to $20,500 plus $6,500 if you are over age 50. That’s $27,000 total over age 50. Plus any company match.
If you have a paired Profit Sharing plan with a 401(k), you can contribute up to $61,000 plus a catch-up contribution of $6,500 if over age 50.
Health Savings Accounts (HSAs):
While technically not a retirement account per se, many people sock away money in these accounts to use in retirement for medical costs. Single people can contribute up to $3,650, families $7,300. If you are over age 55, you can make additional catch-up contributions of $1,000.
A little-known fact: Once you are age 65 or older, you can use your HSA account to pay for any qualified medical costs that you’ve incurred after you opened your account. You can go back to a cost you had before age 65 (but after you opened your account) and get reimbursed for those costs.
Retirement Plan Distributions
There are rules for putting money into plans and rules for taking it out. So many rules…
Inherited IRAs (non-spouse):
Starting with the SECURE Act, if you inherit an IRA in 2020 or later, you have 10 years to take that money out (actually 11 years if you count the year you inherited the IRA). The clock starts the year after the owner died.
If you inherit a Roth IRA, there is no tax due when the money comes out. So you could take it all out on the last day and not worry about the tax implications.
Not so with traditional IRAs. You pay tax on what you withdraw every year. So you should be strategic about when you pull that money out. You could go ratably each year. If you have erratic income, you might match your withdrawals to the lower income years. Think about required minimum distributions on your own IRAs once you’re age 72 or older. Or when you sell a business. Or any other higher income event.
Inherited IRAs (spouses and non-spouses):
Remember to take the last Required Minimum Distribution (RMD) if the owner was over age 72 before you roll over the IRA to an inherited IRA.
Your Own Traditional IRA:
Once you are age 72, you have to start taking RMDs. In 2022, there are new RMD tables from the IRS – included in the PDF below.
Required Minimum Distribution Tables for 2022
Uncertainty is the word I hear parents and students use most now. Internships are more uncertain. Will they be virtual? Will changing business needs force plans to change? Some students delayed attending college when the virus was at its worst. So graduating may take longer. Adaptability and flexibility are required skills for today’s graduating young adults.
There are some changes to the amounts you can contribute to various types of plans. Here’s an updated education funding chart.
College Savings Plan Comparison
If you make more money, more of your Social Security benefits will be taxed. For singles, if you make between $25,000 and $34,000, you’ll be taxed on 50% of your benefits (that’s $32,000 to $44,000 for married filing jointly). If you earn more than $34,000 single or $44,000 MFJ, you’ll pay tax on 85% of your benefits.
If you are still working, the rules get more complex. You may lose benefits depending on how much you earn. See https://www.ssa.gov/pubs/EN-05-10069.pdf to better understand your options.
Medicare premiums go up every year. If you are still working, you don’t have to sign up for Parts A and B initially. But you may want to sign up for Part A as most people get this coverage for free. It can act as a secondary insurance to your work coverage. But if you do that, you’ll no longer be able to contribute to a Health Savings Account. You can find the new rates in this PDF.
How Much Does Medicare Cost?
If you are age 62 or older, you can tap into your home equity up to 60% of that value up to a maximum loan of $822,375. Having a line of credit on a reverse mortgage can help you avoid selling stocks if we find ourselves in a prolonged bear market.
The most important thing you can do in 2022 is enjoy your life every day and if you are younger, make sure you are saving for the future. It will give you more freedom at every point in your life. And knowing the thresholds that affect taxes and savings mean you make the most of the opportunities you find along the way.
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