Great Tax Breaks that Baby Boomers Can't Miss in 2022

Reaching that mid-century mark has various perks, some tax breaks you may miss are targeted at older individuals. You can now contribute more to your retirement account than you used to be able to in the past. More contributions mean more money on your way to retirement! It's possible to set up exclusions in your tax calculations, giving you more cash in hand and decreasing your monthly deductions.

Congress enacted provisions for the so-called "Baby Boomer" generation in the Economic Growth and Tax Relief Reconciliation Act of 2001. This is an exciting time for tax cuts. Congress incorporated other tax-saving measures, such as a more significant standard deduction, into the Tax Cut and Jobs Act of 2017.

Hello!

If you have been waiting on the sidelines and you're behind on your retirement savings, now is your opportunity to get back in the game. The tax law can help you afford more without sacrificing your retirement savings. When you're either in retirement or near it, the tax code allows you to pay a lower amount on taxes. A rare opportunity - don't pass up the chance to save some money!

You can now provide even more to your retirement fund!

The new changes on standard tax deduction 2021 will allow you to contribute more to your retirement fund while still withdrawing the money before you turn 59.5 years old. This change is an excellent opportunity for people who want to save more for their retirement and want the flexibility of using that money in case they need it.

Starting in 2022, the contribution limit for employees who participate in 401(k), 403(b), and other saving plans will be $20,500. This is up from $19,500 this year. Employees over 50 can contribute $6,500, for a total of $27,000.

The maximum yearly IRA contribution limit for a traditional or Roth IRA remains the same at $6,000. The catch-up contribution is $1,000. The same as it will be in 2021. The yearly SIMPLE contribution limit is $3,000.

A Vanguard report, "How Americans Save 2021," shows that only 15% of those who are eligible for catch-ups take advantage of them.

This may be a warning sign for the future, as data from the National Retirement Risk Index (NRRI) compiled by the Boston College Center for Retirement Research indicates that half of all American households won't afford their current standard of living once they are retired.

According to the US government, 50% of married retirees rely on Social Security payments for half their income. That's a HUGE chunk of people's income, so it is imperative to stay on top of your expenses when preparing for retirement. For example, if you prepare to spend $2000 per month once you retire, then your savings will need to be around $535,000

Start Saving Now! Your contributions can reduce your tax bill.

You may be wondering why you should contribute to a tax-deferred retirement plan. Aside from making your retirement more comfortable, contributing to a tax-deferred retirement plan, such as an IRA or a 401(k), also reduces your income — which, in turn, reduces your income taxes.

For that tax reduction, you're going to have a bit more cash in your pocket each week, so you can afford to put an even more significant contribution than before into your 401k at work. If you earn $75,000 a year, for example, and make a 5% contribution of your salary each year, it would mean putting $144 into your account. Then you'll be saving $108 every two weeks, according to Fidelity Investments

Traditional IRA contributions are legally deductible, which means you can deduct the amount of your contribution from your taxable income. If you (or your spouse) do not have a retirement plan at work, you are eligible for deducting the total amount of contributions to this type of IRA account. Even if a workplace retirement plan covers you, your deductions may be limited if your income exceeds certain limits.

You can't deduct IRA contributions for 2022 when you are a single person with a retirement plan from your job, and your modified adjusted gross income (MAGI) is $78,000 or more. The deduction disappears for married couples filing jointly when MAGI is $109,000 or higher.

A Roth IRA or 401(k) retirement contribution is made after-tax. So, you get no upfront tax break for the contribution, but the withdrawals taken from a Roth in retirement are tax-free. The money that you earn in a traditional IRA or 401(k) grows tax-free, but you'll have to pay taxes on it later.

Saving an extra $6,500 in your 401(k) may be challenging for some, and as such, CFPs always advise their clients to have the 'catch-up' amount deducted evenly over each paycheck and automatically. "Contributing $350 over 26 paychecks saves about the same amount that a year's worth of salary would."

Other CPAs recommend that their clients reconsider their budget to make more room for retirement. It would be best if you started by setting these contributions as an ongoing expense like your regular bills are. It's going to take a lot of discipline and compromise, but in the end, it'll be worth it!

You still Do!

You still have time to contribute to your traditional IRA or Roth for 2021; hurry up! You have until April 15th to submit your tax return, but 401ks and many other retirement plans follow the calendar year, so you'll need to hurry. However, we can help you research the impact of tax reform on taxes before April 15.

Your Required Minimum Distribution (RMDs) can be postponed until your 72nd Birthday.

There's more good news on Required Minimum Distribution (RMDs), as you may now inherit a Roth IRA. This type of retirement plan doesn't require any minimum withdrawals while the owner is alive, and they can be passed down to your heirs tax-free.

The new tax rules allow you to take your first RMD at age 72. If you don't need the funds, consider donating them. You can save up to $100,000! If you make a qualified donation directly from your retirement account to a qualified charitable organization, the gift will not be treated as taxable income.

Remember your Health Saving Account (HSA).

HSAs are a great way to save on your medical bills. Make sure to utilize this benefit provided by your employer. The IRS gives a lot of helpful tax breaks for retirement accounts. You get to deduct contributions from your gross income, even if you don't itemize, and employers can exclude it from their own. This can lead to sizable savings over time. All of your earnings are 100% tax-free. You can use the account funds to pay for qualified medical expenses, some of which are ambulance rides and X-rays. Plus, the account is yours and can be taken with you to a new employer and used on future qualified medical expenses.

For the upcoming year of 2022, the maximum annual contribution limit for one family is $7,300 and $3,650 for a single person. If you're 55 and over by December 31st, you can contribute an extra $1,000 in pre-tax money. That being said, the amount your employer contributes every year isn't included in your income calculations, which reduces your limit.

Get a better standard deduction at 65

As you get older, your standard deduction improves, which is excellent for your taxable income. In the 2021 tax year, the standard deduction for married couples will be $25,100. This is increased from the 2020s by $24,800. Single people and those who are married but filing separately now have a higher deduction amount of $12,550. This amount is up from the previous year when it was $12.400.

The extra standard deduction is a great benefit for taxpayers 65 and older. You should take advantage of it while you can! your deduction increases $1,700 for 2021, and $1,750 for 2022. If you file jointly, your deduction is reduced to $1,350 if only one of you is 65 or older. If both filers are 65 years or older, the standard deduction is increased considerably by $2,700; for those whose both spouses are blind at the same time, this deduction doubles.

Many taxpayers opt for the higher standard deduction, which can make it difficult to deduct everything; if your total itemized deductions are lower than what the standard deduction allows, you might be better off going for the higher standard. Nevertheless, tax deductions are still valuable, so getting a larger standard deduction is good.

Here is a goody!

You may be able to file a new simplified Form 1040-SR for boomers if you've turned 65 or older. This filing form (1040) is mainly for those who manually file their taxes by paper. You can input Social Security benefits and retirement distribution. It provides a handy chart that displays the more significant standard deductions

It will go away; take your charitable deductions this year.

The standard deduction is so high that most people no longer have reason to itemize. (It makes no sense to itemize if you get a bigger refund from the standard deduction than from your actual deductions.) For the tax year 2021, for those who file only a single return, you can deduct cash gifts to qualified charities for up to $300. If you're married and filing jointly, the deduction can amount to $600. You only get these deductions if you take the standard deduction instead of itemizing. If you do not take this deduction in this current year, you will lose this benefit because it will not be available next year.