Some Friendly Reminders

While the last two years of IRS rule changes and updates may have left you feeling a bit dizzy, the new year allows for tax planning opportunities. Simple but impactful changes have occurred.

Retirement Plan Contribution Limits Increased To accommodate for rising inflation, tax laws have allowed for an increase to the maximum contribution limits for 2022. The new law allows for an additional $1,000 per year to be contributed to qualified accounts such as a 401(k), 403(b), or 457. The maximum employee contribution amount for 2022 is now $20,500.    Unfortunately, if you are 50 years or older, the catch-up contribution did not increase and remained at $6,500. For 2022, this brings the maximum employee contribution for those 50 and older to $27,000.

Gift Tax Exclusion Increased The annual gift tax exclusion has also been increased for the first time in four years by $1,000. For 2022, the annual gifting amount is now $16,000 per person. A married couple would be able to gift $32,000 ($16,000 each) to one person.

Estate Tax Exclusion Increased   There was also an increase in the estate exemption. High-net-worth individuals can now shelter $12.06 million ($24.12 million for a married couple) in federal estate taxes or gift taxes. That was an increase from the previous year’s $11.7 million exemption for individuals. The increase is significant as it provides almost $300,000 of additional assets an individual can give away during life or at death without incurring the 40% transfer tax. The current estate and gift tax exemption law sunsets in 2025.

RMD Table Updated  The current table used to calculate the required minimum distributions (RMDs) from qualified accounts was updated for 2022. The new tables take into account longer life expectancies. It is anticipated that the updated table will subsequently lower the annual amount required to be distributed.

How does this apply to you?

If you have questions or wish to speak with a financial advisor about these tax changes, please feel free to reach out. While we are not tax professionals, we are always happy to share ideas or collaborate with your CPA or tax preparer.

"The avoidance of taxes is the only intellectual pursuit that carries any reward" -John Maynard Keynes, Economist

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Source: https://www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax https://money.usnews.com/financial-advisors/articles/how-tax-code-changes-may-affect-financial-advisors-clients#:~:text=In%202022%2C%20the%20IRS%20will,rise%20in%20inflation%20in%202021. https://www.kiplinger.com/taxes/tax-law/603037/tax-changes-and-key-amounts