What should know in 2022 if you save for retirement
We all get sentimental from time to time, but unless you won the lottery or found the love of your life, chances are you won’t remember 2021 too fondly. The COVID-19 pandemic continues, inflation is on the rise, and ABBA has inexplicably put out a new album.
Although retirement is different for everyone, 2022 will bring some big changes from 2022. That will affect nearly all retirees and people saving for retirement to some degree. You’ll see changes in your tax rates and deductions, for example, plus an increase in your Social Security check if you’re already collecting benefits. You’ll also be able to save a little more in your retirement accounts. Here’s a closer look at what you need to know;
Increases the standard deduction
Let’s start with the good news: higher standard deductions on your federal income taxes. Taxpayers can choose between taking the standard deduction and itemizing their deductions. Deductions reduce your taxable income and therefore your taxes.
The standard deduction, being so large, typically results in a larger reduction in taxes than itemizing. Most people take the standard deduction. In 2022, when you file your federal income tax return forms for 2021 earned income. Married couples will receive a standard deduction of $25,100. An increase of $300 compared to tax year 2020. For single filers and married individuals filing separately. The standard deduction will increase to $12,550, an increase of $150 from the prior year.
For those who like to plan far ahead, the 2022 standard deduction for earned income — which you can claim when you file in 2023 — will also increase. The standard deduction for married couples filing jointly for tax year 2022 will increase to $25,900, an increase of $800 compared to 2021. For single taxpayers and married individuals filing separately, the standard deduction will increase to $12,950 in 2022, an increase of $400.
Assuming you’re 65 or more established (or visually impaired) and record as a solitary citizen, you’ll get an extra standard allowance of $1,700 for charge year 2021 and an extra $1,750 for charge year 2022. Are you married filing jointly? The additional standard deduction is less per person: $1,350 for tax year 2021 and $1,400 for tax year 2022. For taxpayers who are over 65 and blind, the additional deduction is doubled.
The special deduction for charitable donations disappears
Here’s some bad news on the tax front: A temporary tax break that allowed many people to easily deduct some charitable donations won’t be available in 2022. On 2021 government forms, single citizens can deduct $300 in specific beneficent commitments, and wedded citizens can deduct $600. This exemption applies to people who use the standard deduction; you can’t claim it if you itemize your deductions. Qualified charitable deductions had to be made by December 31, 2021.
Also, the $300 allowance is for 2021 money gifts, which incorporate cash, checks, credit or charge cards, and electronic asset moves. The deduction cannot be apply for the donation of goods, such as clothing or household items. You must also make your contributions to qualified charities. Ask the charity if it’s an IRS-qualified organization, or check online using this tool on IRS.gov.
Retirement plan distributions
When you filed your 2020 tax return in 2021, you were able to take advantage of some great tax breaks for the year of the pandemic. For example, you didn’t have to withdraw any required minimum distributions (RMDs) from your tax-deferred retirement accounts, such as traditional IRAs and 401(k) savings plans. Additionally, the government allowed people under the age of 59 1/2 to withdraw up to $100,000 from their retirement accounts in 2020 without paying the usual 10% penalty. It also allowed people to spread the tax on retirement plan withdrawals over three years, and put that money back into their accounts if they wanted.
But those tax breaks no longer exist, even though COVID-19 is still here. If you were already receiving RMDs in 2019, they were due to resume in 2021. Distribution was to be withdrawn no later than December 31, 2021. However, because the age to start RMDs increased from 70 1/2 to Age 72 Anyone. Who turned 72 after June 30, 2021 has only until April 1, 2022 to take their first RMD. Subsequent RMDs must be made before the last day of the calendar year. You can find out how much you need to withdraw from your retirement accounts with AARP’s RMD calculator or consult a tax professional.
If you’re under 59 ½ and you took money out of your retirement savings tax-deferred in 2021, you’ll owe a 10% penalty on your entire distribution in addition to regular income taxes on the amount you took out. Can you spread your taxes over three years? No, sorry, that was only possible for 2020 distributions.
Contributions to a retirement plan
On the other hand, you may be able to contribute more to some retirement plans in 2022 than in 2021. For workplace accounts, such as 401(k) s and 403(b) accounts, people saving for retirement will be able to contribute up to $20,500 in 2022, an increase of $1,000 from 2021. People age 50 and older can add an additional $6,500—the same amount of catch-up contribution as in 2021—up to a maximum contribution of $27,000 in 2022.
The contribution limit in 2022 for traditional IRAs and Roth IRAs remains the same as in 2021: $6,000. People age 50 and older saving for retirement can add another $1,000 as a catch-up contribution, up to a total of $7,000, the same as in 2021. On the other hand, you will be able to contribute more to your retirement plans in 2022 than in 2021. These are as far as possible for deducting conventional IRA commitments. For making Roth IRA commitments, in view of your changed gross pay.