To help Social Security and SSI beneficiaries keep up with inflation, they often receive an annual cost-of-living adjustment, known as COLA. Based on the increase in the Consumer Price Index (CPI-W) from the third quarter of 2020 through the third quarter of 2021, the Social Security Administration announced that COLA for 2022 benefits would increase by 5.9 percent, the largest increase since 1982. This means that more than 70 million Americans will see a change in their benefit payments.
While the Social Security income benefits are increasing, the rising cost and utilization of the health care system will also be reflected in an increase in premium for those enrolled in Medicare. Medicare premiums for Part B and D are based on your Modified Adjusted Gross Income reported on your tax return from 2 years prior, therefore 2022 premiums are based on your income reported on your 2020 return. Part B monthly premiums begin at $170.10 (2022), up 14.5% from $148.50 (2021), and increases from there based on income.
Also, in November 2021, the IRS announced cost-of-living adjustments that affect limitations on qualified retirement plans and health plans. The increases took effect on January 1, 2022. Employee contribution limits for 401(k), 403(b), and most 457 plans increased, but the catch-up contribution limits for employees age 50 and over remain unchanged. The annual benefit limit for defined benefit plans and the contribution limit for defined contribution plans will increase slightly.
In May 2021, the IRS issued the 2022 contribution limits for Health Savings Accounts (HSAs) and maximum out-of-pocket amounts for High Deductible Health Plans (HDHPs), although minimum deductibles for HDHPs remained unchanged. Then in November 2021, the IRS released updated FSA limits for 2022 (increased from $100 to $2,850).The following is a summary of the IRS changes for 2022:
- 401k plan, 403b and 457 increased from $19,500 (2021) to $20,500 (2022) with an additional catch up for those over age 50 for $6,500 (unchanged from 2021).
- Simple IRA contributions increased from $13,500 (2021) to $14,000 (2022) with an additional $3,000 for those over age 50.
- SEP IRA contribution limit increased from $58,000 (2021) to $61,000 (2022).
- The annual compensation limit taken into account for contributions increased from $290,000 (2021) to $305,000 (2022).
- The limit on the annual benefit under a defined benefit plan increased from $230,000 (2021) to $245,000 (2022).
- The threshold for "highly compensated employee" status used in performing various nondiscrimination tests increased from $130,000 (2021) to $135,000 (2022).
- The threshold for "key employee" status for officers used in performing the "top-heavy" test increased from $185,000 (2021) to $200,000 (2022).
- No changes to IRA and Roth contributions at $6,000 with an additional $1,000 for those over age 50. Unlike Roth IRAs, there are no income limits for contributing to traditional IRAs, and you can deduct your contributions in full if you and your spouse don't have a 401(k) or some other retirement plan at work. If either one of you is covered by a plan at work, the deduction may be reduced or eliminated. Below is an updated deductibility chart:
- Health Savings Account (HSA) limit for an individual increased from $3,600 (2021) to $3,650 (2022) and for a family plan increased from $7,200 (2021) to $7,300 (2022), with an additional $1,000 for those over age 55.
If you would like to discuss how any of these changes might impact your personal situation, please reach out to your Ciccarelli Advisory Team.
Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed. Federal tax laws are complex and subject to change. This information is not intended to be a substitute for specific individualized tax or legal advice. Neither FSC Securities Corporation, nor its registered representatives, offer tax or legal advice. As with all matters of a tax or legal nature, you should consult with your tax or legal counsel for advice.