Your 2022 Financial To-Do List
Things you can do for your financial future as the year unfolds.
What financial, business, or life priorities do you need to address for the coming year? Now is an excellent time to think about the investing, saving, or budgeting methods you could employ toward specific objectives, from building your retirement fund to managing your taxes. You have plenty of choices. Here are a few ideas to consider:
Can you contribute more to your retirement plans this year?
Limits for workplace 401(k) plan contributions have increased for 2022. Workers who are younger than age 50 can contribute a maximum of $20,500 to a 401(k) in 2022. If you’re age 50 and older, you can add an extra $6,500 per year in “catch-up” contributions, bringing your total potential 401(k) contributions for 2022 to $27,000.
In 2022, the contribution limit remains unchanged from 2019 for your own Roth or traditional individual retirement account (IRA).
The maximum amount you can contribute to a Roth IRA for 2022 is $6,000 if you’re younger than age 50. If you’re age 50 and older, you can add an extra $1,000 per year in “catch-up” contributions, bringing the total contribution to $7,000.
The actual amount that you are allowed to contribute to a Roth IRA is based on your income. To be eligible to contribute the maximum amount in 2022, your modified adjusted gross income must be less than $129,000 if single or $204,000 if married and filing jointly. Contributions begin to be phased out above those amounts, and you can’t put any money into a Roth IRA once your income reaches $144,000 if a single filer or $214,000 if married and filing jointly.
The maximum amount you can contribute to a traditional IRA for 2022 is $6,000 if you’re younger than age 50. Workers age 50 and older can add an extra $1,000 per year as a “catch-up” contribution, bringing the maximum IRA contribution to $7,000. You must have earnings from work to contribute to an IRA, and you can’t put more into the account than you earned.
Your 2022 IRA contributions may also be tax-deductible. If you—and your spouse, if married—don’t have a retirement plan at work such as a 401(k), you can deduct the full contribution to your traditional IRA on your tax return no matter how much you earn. You have until the federal tax filing deadline to make your IRA contribution for the previous year.
Even if you have a retirement plan through your job, you may still be able to deduct some or all of your contribution depending on your income. For 2022 IRA contributions, the amount of income you can have and still get a full or partial deduction rises from 2021. Singles with modified adjusted gross income of $68,000 or less and joint filers with income of up to $109,000 can deduct their full contribution for the 2022 tax year. Deductions thereafter decrease and phase out completely once income reaches $78,000 for singles and $129,000 for joint filers.
Be aware that you generally must have earned income to contribute to an IRA. But if you’re married and one of you doesn’t work, the employed spouse can make a contribution into a so-called spousal IRA for the other.
Do you need to start planning for RMDs?
Only traditional, taxable retirement accounts are subject to RMDs. Once you reach age 72, you must begin taking required minimum distributions (RMDs) from traditional IRAs (and traditional 401(k)s) in most circumstances. Withdrawals from traditional IRAs and 401(k)s are taxed as ordinary income and, if taken before age 59½, may also be subject to a 10% federal income tax penalty.
NOTE: Employer match amounts are pretax and not distributed tax-free during retirement, so they will most likely be subject to RMDs even if you have elected a Roth plan at work.
Roth IRA accounts are generally not subject to RMDs, although inherited Roth IRA accounts must now be emptied within 10 years of inheritance. In order for Roth IRA accounts to qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA withdrawals must meet a five-year holding requirement and occur after age 59½. After holding a Roth IRA account for five years, you can withdraw any contribution amount (money you have put in) for any purpose at any age.
Should you consider Roth conversions or rollovers?
If you are five to 10 years away from retirement, you may want to ask your financial advisor and tax professional if it would be beneficial to begin converting or rolling over some of your traditional, taxable retirement account funds into Roth IRAs, which might save you on income taxes for the long-term. Remember, you will have to pay income taxes in the year/s that you do rollovers or conversions.
It is highly recommended that you work with tax experts on these rollovers or conversions as they cannot be undone.
Should you make a charitable gift?
You may be able to claim a charitable gift deduction on your tax return, provided you follow the Internal Revenue Service guidelines. The paper trail can be important here. If you give cash, you should consider documenting it. Some contributions can be demonstrated by a bank record, payroll deduction record, credit card statement, or written communication from the charity with the date and amount. Incidentally, the IRS does not equate a pledge with a donation.
Make certain to consult your tax, legal, or accounting professional before modifying your record-keeping approach or your strategy for making charitable gifts.
Can you take a home office deduction for your small business?
If you are a small business owner, you may want to investigate this. You may be able to write off expenses linked to the portion of your home used to conduct your business. Using your home office as a business expense involves a complex set of tax rules and regulations. Before moving forward, consider working with a professional who is familiar with the tax rules as they relate to home-based businesses.
Should you change your withholding?
Consider adjusting your withholding amount if any of these factors apply to you:
- You tend to pay the federal or state government at the end of each year.
- You tend to get a federal tax refund each year.
- You recently married or divorced.
- You have a new job, and your earnings have been adjusted.
We recommend that you consult your tax, human resources, and/or accounting professional before modifying your withholding status.
Did you get married in 2021?
If so, it may be an excellent time to review the beneficiaries of your retirement accounts and other assets. The same goes for your insurance coverage. If you are preparing to have a new last name in 2022, you may want to get a new Social Security card. Additionally, retirement accounts may need to be revised or adjusted.
Will there be tax impacts for any upcoming important transactions?
Are you preparing to sell any real estate this year? Are you starting a business? Might any commissions or bonuses come your way in 2022? Do you anticipate selling an investment that is held outside of a tax-deferred account?
Vow to practice sound financial habits in 2022. And don’t be afraid to ask for help from professionals who understand your individual situation. If you have any questions, call us!
Keep in mind, this article is for informational purposes only and not to be construed as financial or tax advice, nor is it a replacement for real-life advice based on your unique situation. Tax rules are constantly changing, and there is no guarantee that the tax landscape will remain the same in years ahead. You should always consult with a tax professional when making decisions that impact taxes.
Investment advice offered through Stratos Wealth Advisors, LLC, a registered investment advisor; DBA GA Investment Management (“GAIM”).