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New Money Rules That Could Affect You in 2022

New Money Rules That Could Affect You in 2022

January 03, 2022

A new year brings new changes, including those that affect your money. From adjustments to the tax brackets and 401(k) income limits to larger Social Security checks, being aware of the new rules can help save you time and money.


Let’s walk through what’s changing and how to plan for it.


New Tax Bracket Income Thresholds

The government decides how much Americans owe in taxes by dividing their taxable income into tax brackets. The tax bracket you fall into depends on your taxable income and filing status. As you make more money, you move up the tax scale. The IRS typically adjusts tax brackets each year to account for rising consumer prices, but this year's increases are larger than usual. Historically, adjustments are around 1%. In 2022, Americans will see around a 3% increase. For example, a standard deduction for married couples will rise 3.2% to $25,900 next year. Changes like this are why it’s important to plan all year. Tax credits and deductions are two common ways to get in a lower tax bracket and pay a lower federal income tax rate. A tax credit directly reduces the amount of tax you owe, and a tax deduction reduces how much of your income is subject to taxes. If you have concerns about how tax changes could impact your financial future, we can help you sort out the best tax plan for you.


Standard Deduction Increases

The standard deduction reduces the amount of income you have to pay taxes on. The IRS is changing the numbers, and they will increase depending on how you file your 2022 federal return. For married couples filing jointly, the standard deduction increased from $25,100 to $25,900. For single taxpayers and married individuals filing separately, the standard deduction increased from $12,550 to $12,950. For heads of households, the standard deduction increased from $18,800 to $19,400.There are a few things to consider when deciding whether to take the standard deduction or itemize. If your standard deduction is less than your itemized deductions, consider itemizing to save money. If your standard deduction is more than your itemized deductions, it might be worth it to take the standard deduction and save some time. Base your decision after running the numbers both ways to see which method produces a lower tax bill.


Higher 401(k) Contribution Limits

If you participate in a 401(k) plan, the good news is you have more control over your retirement money. The IRS has increased the amount of money employees can contribute to workplace retirement accounts like 401(k)s, 403(b)s, etc. In 2022, the amount you can contribute to these accounts rises $1,000 for a total of $20,500. Another increase was for SIMPLE IRA Plans (Savings Incentive Match Plan for Employees), which boost contributions from $13,500 to $14,000.If these increases apply to your retirement strategy, you may want to make some adjustments to your contributions. 401(k) management and strategy are common questions we get for clients. If you do not manage it properly, the 401(k) may not help you pursue your retirement goals. At Zephyrus Financial Services, we can help set you on the right path for 401(k) success.


Full Retirement Age is Moving

Those approaching retirement will have to wait longer to receive their full Social Security benefits. For someone celebrating their 66th birthday in 2022, their full retirement age, or FRA, will be 66 and four months. Your Full Retirement Age is calculated based on the year you were born and continues to increase by two months until it reaches age 67 for anyone born in 1960 or later. You can claim your benefits as early as age 62, but your benefits will be permanently reduced. The longer you wait, the greater your benefits will be. At age 70, you’re eligible for the maximum annual benefit. Social Security is a complicated subject, and it can be difficult to figure out what your benefits will be. We can help calculate your Social Security benefits and determine which claiming strategy is most appropriate for you.


Social Security Benefit Bump

If you already receive a Social Security check, you’re going to see a slight increase in the new year.  The Social Security Administration’s cost-of-living adjustment, or COLA, is the biggest boost in 40 years. Beneficiaries are seeing a 5.9% increase in payments, which translates to an average benefit increase of $92 per month. The higher check is to help recipients manage inflation. But even though benefits increase each year, so do housing and healthcare costs, two of the main expenses for retirees. While retirees have no control over rising costs, they can take measures to protect themselves if their retirement income begins to fade. The first step would be to rework your budget. We can’t rely on the Social Security Cost-of-Living Adjustment each year. Downsizing or relocating is an option to look into as well. The proceeds from selling a house could be put into a retirement fund. On the other hand, mortgage rates are very low, enticing many to refinance to cut the monthly payment.


Financial decisions can be very confusing and overwhelming. At Zephyrus Financial Services, we are passionate about sharing our knowledge and expertise. We can help you prepare for any changes that could impact your retirement. There are a lot of moving parts in creating a financial roadmap to reach your goals. We incorporate all of them, from our unique 401(k) strategies to tax management and legacy planning. Please reach out if you have any questions about changes to any of your sources of retirement income.