As we bid farewell to 2021, we hope that you have opportunities to connect with family and friends, to relax and take a break from your routine, and to consider what you’re looking forward to in the year ahead. In addition to setting goals about books you want to read, activities you’d like to complete, and personal milestones you aim to achieve, you might also take advantage of some small pockets of time during the holiday season to complete some financial housekeeping tasks. This can help you start 2022 feeling productive, and move your savings and planning in the right direction for the new year.
In addition to revisiting your financial goals, some of the tasks we encourage you to consider include reflecting on retirement account contributions, catching up on submitting flexible spending account reimbursements, and learning about how changes related to accounts with required minimum distributions might affect you. We share a few details on these below.
Workplace Retirement Accounts (401(k), 403(b), 457(b) etc.) & IRA and Roth IRAs
Chief among the tasks is to review the contribution amounts to your workplace retirement plan such as a 401(k), 403(b), or 457(b).
- As cash flows allow, consider increasing your employee contributions into the retirement account from each paycheck. Think of this as paying your future self!
- If your employer offers a matching contribution, be sure to contribute at least enough to get the match; otherwise you are leaving free employer-provided money on the table.
- For 2022, the employee contribution limit increases to $20,500 (or $27,000 for those age 50+) so if you are in a position to contribute the maximum, check with your retirement plan/employer to ensure the correct amount is being withheld each pay period.
For individual retirement accounts (IRAs & Roth IRAs), the total annual contribution limit remains unchanged from 2021 to 2022.
- You can contribute up to the lesser of 100% of your earned income or $6,000 (or $7,000 for those age 50+). The deadline for making contributions for tax year 2021 is 4/15/2022 and the deadline for tax year 2022 is 4/15/2023.
Contribution Limits for Workplace retirement plans, IRAs & Roth IRAs
Monthly contribution amount to meet the maximum
Workplace retirement plans: (401(k), 403(b), 457(b)* etc.)
$19,500 + ($6,500 catch-up for people age ≥ 50)
$20,500 + ($6,500 catch-up for people age ≥ 50)
$1,708/mo. ($2,250/mo. if age ≥ 50)
IRAs & Roth IRAs**
$6,000 + ($1,000 catch- up for people age ≥ 50)
$6,000 + ($1,000 catch-up for people age ≥ 50)
$500/mo. ($583/mo. if age ≥ 50)
*Non-governmental 457(b) plans do not allow the age 50+ $6,500 catch-up provision. The maximum contribution for 2022 is $20,500 regardless of age.
** IRA and/or Roth IRA contributions require you to have earned income (wage, self-employment income) for the contribution year. The tax deductibility of an IRA contribution depends on your modified adjusted gross income (MAGI) and whether you (or your spouse) are covered by an employer retirement plan. Roth IRA contribution limits are based on your MAGI and tax-filing status. Contribution amounts phase out at certain higher-income ranges.
Health Care Flexible Spending Account (HCFSA) & Dependent Care Flexible Spending Account (DCFSA)
Gather and submit your unreimbursed receipts for out-of-pocket qualified health care and dependent care expenses incurred in 2021, if you participated in an HCFSA or DCFSA during the year.
- An HCFSA and DCFSA are employer sponsored plans that allow an employee to set aside pre-tax money from their paycheck to cover and health expenses such as copayments, deductibles, some drugs, and other health care costs and qualified dependent care (like preschool, childcare & summer day camps for those under age 13, adult care, etc.).
- Money placed in an HCFSA or DCFSA follows a use-it-or-lose-it rule, meaning you must withdraw the dollars in the account (to cover eligible expenses) by a certain date or you forfeit the money.
- Typically, dollars contributed during a given year must be removed by that year’s end, although some plans allow participants to incur eligible expenses through March 15th of the following year and then submit for reimbursement by April 30th. Your employer plan gets to set the deadline. Recent legislation further relaxed the deadline rules by allowing unused HCFSA and/or DCFSA dollars from 2021 to roll into 2022, but only if the employer sponsoring the HCFSA or DCFSA adopted the rollover provisions.
- Contact your employee benefits department if you are unsure whether your HCFSA or DCFSA will allow unused dollars to roll to 2022 or if you have questions about the submission deadline.
Accounts Subject to Required Minimum Distributions in 2022
Account owners of IRAs, inherited IRAs, or workplace retirement accounts that are subject to required minimum distributions (RMDs) for 2022 should be aware of the updated IRS life expectancy tables for calculating the appropriate RMD amounts.
- The new tables, which go into effect 1/1/2022, reflect an increase in life expectancies. In general, the updated tables will result in a slightly smaller required payment than if the RMD had been calculated using the prior tables.
- If you are a client of ours subject to a RMD, we will calculate that amount for you.
Taking some time to reflect on these topics is a great way to set yourself up for success in 2022. The team at Woodward Financial Advisors is happy to answer your questions about these and other financial planning areas. We wish you all a very Happy New Year.
Written by Austin Brown, CFP®