It is important to us that our family of clients start off the new year on the right foot. In 2022, we are highlighting our beginning of year planning tips. We hope you find this to be a helpful guide for how we can assist in preparing you for the year.
PLAN AHEAD
Retirement Plan Contributions
In 2022, $20,500 is the maximum elective pre-tax and ROTH contribution amounts by individuals, up from $19,500 in 2020 and 2021. This applies to 401k, 403b, most 457s, and Thrift Savings Plan accounts. There’s an additional provision allowing another $6,500 in catch-up contributions (pre-tax and ROTH) if you are age 50 or more, bringing the annual elective total to $27,000.
The overall limit for these plans is $61,000 annually or $67,500 if 50 or older where the difference between the overall limit and elective contributions can be satisfied by after-tax employee and employer contributions. Employer contributions can consist of either matching, profit-sharing, or non-elective contributions.
If maximizing your contributions is a stretch, be sure to contribute enough to capitalize on the ‘free money’ via the eligible matching contribution, if offered by your employer.
IRA & ROTH IRA – Annual contributions remain unchanged at $6,000 per year, a limit in place since 2019. Individuals 50 years or older are permitted to contribute another $1,000 per year.
SIMPLE Plan - $14,000 is the annual maximum for individuals with an eligible catch-up amount of $3,000 per year.
SEP IRA – Employers are exclusively responsible for SEP IRA contributions where limits are the lesser of 25% of the employee's compensation, or $61,000 for 2022.
Keep in mind that elective salary deferrals and catch-up contributions are not permitted in SEP plans.
Health Savings Account (HSA) – For those enrolled in a high deductible health plan (HDHP), you are allowed to contribute a maximum of $3,650 as an individual and $7,300 in contributions for families. A $1,000 catch-up contribution for ages 55 or more is also permitted. HSA accounts are for great vehicles to use pre-tax monies to pay for qualified medical expenses.
GET ORGANIZED
The beginning of the year is a great time to organize your finances. Each year’s tax filing deadline thrusts us into a mode to get all our ducks in a row; it’s easy to send your W-2s or 1099s to your accountant and leave it at that.
We advocate taking it a step further and creating a central place to store your important documents. We have found that while these documents are essential, often clients cannot easily access them or are underprepared. Like everything else in life, these types of documents are most needed when you least expect it. In preparation for these unforeseen situations, it is a great idea to gather all your important documents, organize them and make them easily accessible.
Within our ‘Life Case’ repository, we can store the below documents.
- Social security cards, birth certificates, and marriage certificates
- Current financial account statements
- Current credit card statements
- Tax returns
- Insurance policies
- A list of passwords
- Wills and estate documents
- Health care powers of attorney and directives
- Financial powers of attorney
CONSOLIDATE ACCOUNTS
With busy professional and personal lives, we have helped clients consolidate monies not working for them. Keeping service providers simply for convenience despite no value-added service can be an expensive opportunity cost. We continue to encourage our clients to incorporate a holistic view of their personal balance sheet and invest with a goals-based approach. Please know our team is happy to provide a second opinion on any outside assets in the context of your financial plan. If you have any questions or updates regarding your financial planning, please reach out to our team and we will be happy to assist. Thank you again for your vote of confidence in our work!
Sincerely,
Your Team at Main Street Research