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Here are 9 things to know for 2022 about changes to your 401K, child tax credit, & Social Security

2022 brings significant changes to your 401(k), child tax credit, and social security. This guide will walk you through the changes and how they could affect you. Preparing for tax season can be overwhelming, especially with retirement savings, child tax credits, and Social Security benefits changes. Here are nine critical facts to keep in mind for 2022.

You can save more for retirement

Firstly, the maximum contribution to employer-sponsored retirement plans has increased to $20,500 for the year, with those over 50 able to save up to $27,000. Experts recommend contributing 10-15% of your income to avoid lifestyle creep and use employer matching funds.

What about IRAs?

First, IRA contribution limits have stayed the same from the previous year. The maximum amount you can contribute to your IRA is $6,000, or $7,000 if you are 50 or older. However, your eligibility for contribution and whether or not your contribution is deductible will depend on your income level and whether you have a retirement plan at work. It is also worth noting that a popular IRA strategy, known as a backdoor Roth IRA conversion, may be subject to changes under the Build Back Better plan, which is still being discussed in Congress. A backdoor Roth IRA conversion is when an individual makes a non-tax deductible IRA contribution and then converts it to a Roth IRA quickly. If done correctly, the conversion has little to no tax liability.

The proposed changes to the backdoor Roth IRA conversion strategy may affect those using it to maximize their retirement savings. The new legislation may also introduce income limits for new contributions and changes to retirement plan distributions. Does the standard deduction change? The Internal Revenue Service (IRS) has announced that the standard deduction for the tax year 2022 will see a slight increase. According to Bagner, a tax expert, the standard deduction for married couples filing jointly will increase by $800, from $25,100 in 2021 to $25,900 in 2022. The standard deduction for single filers and married individuals who file separately will rise to $400, from $12,550 to $12,950.

Tax Brackets

According to Bagner, the tax brackets experience an annual increase based on the cost-of-living adjustment. As of 2022, the prevailing tax brackets are 0% to 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Will I get the child tax credit every month again? For the year 2021, the child tax credit underwent an expansion and was disbursed on a monthly basis during the latter half of the year. The amount disbursed per child varied depending on age and income level and could go up to $300.

As a component of the Build Back Better strategy, the monthly disbursements are expected to continue; however, there may be modifications in the income eligibility criteria, with the benefit being offered solely to those in the lower income bracket. These discussions are ongoing. Should I change my withholding? Adjusting withholding should also be discussed with a tax preparer or using the IRS tool, as personal circumstances may impact the decision.

Will higher Social Security cost me more in taxes? Furthermore, Social Security beneficiaries will see a 5.9% increase in monthly benefits, the largest increase since 1983. However, Medicare premiums are expected to rise in 2022, with exact amounts yet to be released.