Every November, the federal government comes out with new numbers for us as it relates to how much we can put into retirement accounts, what tax law changes have taken place, Medicare premium and deductible changes that are happening, Social Security benefit changes, and plenty more. Some of these changes are small and some are not small. It's time to know the numbers!
You can contribute $20,500 into a 401(k), 403(b), 457, or TSP for 2022. If you are 50 or older, the amount is $27,000. In many cases, you have the option of putting money in Traditional (get the tax benefit now), or Roth (get the tax benefit later). Iowa citizens would consider the Roth option if your income is under $60,000 or Traditional if you are over that amount. Double those amounts for a married couple.
The IRA contribution limits will not change for 2022. They are $6,000 for those under age 50 and $7,000 for those over age 50. This applies to Traditional or Roth IRAs. In most cases, contributing to a Roth IRA every year while you are working is a wise option. Keep in mind you or a spouse must have earned income to contribute and there is an earnings limit as well. The backdoor Roth IRA is an option. Learn more here (https://www.investopedia.com/terms/b/backdoor-roth-ira.asp).
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Contribution limits for a Simple IRA go up to $14,000 if under age 50 or $17,000 for those 50 and over. The Simple IRA is a great option for small business owners who make a moderate amount of money. A solo 401(k) and a SEP/IRA are good options for those who are the only employee in the business and the income is higher (you can put $61,000 into a solo 401(k) for 2022). Learn more about these plans here. (https://investor.vanguard.com/small-business-retirement-plans/comparison)
The new standard deduction for individuals is $12,950. For the head of household, it goes up to $19,400. For married filing a joint return, it will be $25,900. As a reminder, these are the amounts you can earn each year and not pay any income tax at the federal level. Tax only kicks in after you go above those amounts or above your itemized deductions (not applicable for most people because the standard deduction is so high).
The Medicare Part B premium has gone up to $170.10 per month. If your income is too high, that premium and your Part D premium will be going higher than that amount. These premium increases will be offset with Social Security benefits, which follow in the next paragraph. Deductibles have gone up as well to $1,556 for Part A and $233 for Part B. You can see a more detailed description of these changes here. (https://mcusercontent.com/514966c62246ade13d1a0336b/files/2b447720-ed3b-710f-a2f5-cb6df802f08d/2022_Medicare_Costs_Premiums.pdf)
Social Security benefits will jump by 5.9% in 2022 as an adjustment for inflation. This is a reminder of the value of having a fixed income piece of the portfolio that has an inflation adjustment tied to it over time. Most pensions do not have this benefit, which means a pension-like IPERS will shrink in value over time as each dollar becomes worthless based on the rising cost of goods and services.
The Social Security earnings limit (applies to anyone under their FRA, which is 66 to 67 years of age for most) has gone up to $19,560 ($51,960 in the year in which you hit FRA). Learn more here (https://www.ssa.gov/policy/docs/program-explainers/retirement-earnings-test.html). The work credit to receive Social Security goes up to $1,050 per quarter, which equals $6,050 for the year. The wage cap goes up to $147,000, which means more money will go into the system from higher-income people.
The saver's tax credit income limit has risen to $34,000 for singles, $51,000 for the head of household, and $68,000 for a married couple filing a joint return. This credit, which can be up to $1,000 is a wonderful opportunity for those who make a low income to get tax owed eliminated while investing in a retirement account. The government is paying you to invest in your future!. Learn more about the saver's credit here (https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-savers-credit).
Each year these numbers change to some degree for people in different situations. See a snapshot of all of the changes here (https://mcusercontent.com/514966c62246ade13d1a0336b/files/fc23aa3d-af1b-4fb8-d488-0dbfd5171d62/Important_Numbers_2022.pdf). Stay on top of that and that means a yearly review of the finances is a good idea. Relook at tracking spending, the net worth statement, the goals, the portfolio allocations, finally, make sure all of that works within the framework of a financial plan. That is a plan for a better future!
