One way to build a successful long-term financial plan is by utilizing retirement savings incentives in order take advantage of how taxes may reduce. One challenge with this type of strategy, however, comes from the limits that can apply based on both contribution amounts and who's eligible for them - making it tricky. Know at first glance whether they'll benefit you or not!
Preparing for retirement just got a little more financial wiggle room. The Internal Revenue Service (IRS) announced new contribution limits for 2022. Here are the numbers for 2022 so you can make needed adjustments early in the year.
Staying put for 2022 are traditional Individual Retirement Accounts (IRAs), with the limit remaining at $6,000. The catch-up contribution for traditional IRAs remains $1,000 as well.1
For workplace retirement accounts such as a 401(k) or 403(b) the contribution limit rises $1,000 to $20,500. Catch-up contributions remain at $6,500.1
Eligibility for Roth IRA contributions has increased, as well. These have bumped up to between $129,000 to $144,000 for single filers and heads of households, and $204,000 to $214,000 for those filing jointly as married couples.1
Another increase was for Savings Incentive Match Plans for Employees (SIMPLE IRAs), which increases from $13,500 to $14,000.1
If these increases apply to your retirement strategy, you may want to make some adjustments to your contributions. Where I can be of any help, I welcome the opportunity.
Once you reach age 72, you must begin taking required minimum distributions from a Traditional Individual Retirement Account (IRA) or Savings Incentive Match Plan for Employees IRA in most circumstances. Withdrawals from Traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
Once you reach age 72, you must begin taking required minimum distributions from your 401(k), 403(b), or other defined-contribution plans in most circumstances. Withdrawals from your 401(k) or other defined-contribution plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawal can also be taken under certain other circumstances, such as the owner's death. The original Roth IRA owner is not required to take minimum annual withdrawals.
These changes should help taxpayers save even more for retirement in 2022. The 2021 limits will prevail for the taxes that you file by April 18, 2022. Remember, though, that you can contribute to your 2021 traditional or Roth IRA as late as the 2022 tax deadline.