In 2021, there were numerous major financial stories, particularly as the economy attempted to recover from the pandemic. As we enter the new year, there are a few major financial changes that everyone should be aware of which are very important to Know Your Business .
In 2021, a lot happened that influenced our finances, from high inflation rates and meme stocks like Game Stop to the economy trying to recover after the first year of the epidemic. As we prepare to ring in the new year and celebrate the holidays, it’s a good opportunity to reflect on what happened in 2021 and how we might plan for the future.
Inflation Has Nearly Reached a 40-Year High
As early as May 2021, high prices for gas, lumber, housing, and groceries made the news. In October, the consumer price index in the United States increased by 6.2 percent over the previous year, the largest increase in inflation since December 1990. It got even worse in November, with prices climbing at their quickest rate since 1982, at 6.8%. Despite the fact that more workers in the United States are bringing home more money per paycheck, consumers cannot tell because of the increasing pricing of consumer products they are witnessing.
Economists aren’t hopeful about 2022, as much as we hope these higher prices will be forgotten in 2021. However, there are several things you can do right now to prepare for these price hikes.
Return of RMDs
RMDs, or required minimum distributions, are mandatory withdrawals from qualifying accounts, such as 401(k)s, conventional IRAs, and 403(b)s, beginning at age 72 for anybody born on or after July 1, 1949 – or 70-12 if you were born before then.
Under the CARES Act, minimum withdrawals for retirees will be prohibited in 2020. After the stock market plunged more than 30% in March 2020, the goal was to provide some respite to elderly taxpayers. The 2020 provision allowed retirees’ money to remain in the market and, hopefully, recover and expand. However, the amendment was only temporary, and retirees were compelled to resume withdrawals in 2021.
What Should We Be Aware of in 2022?
Changes to the Internal Revenue Service’s (IRS) Tax Brackets
Each year, the IRS adjusts the tax bracket thresholds based on inflation rates. The adjustments will be significant in 2022, with a jump from 1% to 3%. For example, if a married couple was in the top 35 percent tax rate in 2021, they can make over $20,000 more in 2022 before being pushed into the top 37 percent tax bracket.
We can plan ahead of time for developments like this by doing so throughout the year. Using various tax-planning tactics during your working years can aid in the management of your tax burden in retirement. Speak with a financial adviser if you have worries about how tax changes may affect your financial future.
Changes in 401(k) Contributions
The maximum amount that taxpayers can contribute to their 401(k) plans is also changing, according to the IRS. The maximum 401(k) contribution amount will increase by $1,000 in 2022, to $20,500 (plus $6,500 as a catch-up contribution if you are 50 or older, for a total of $27,000).
The amount that people can contribute to regular and Roth IRAs is the same as it was in 2021 ($6,000 per year, or $7,000 if you’re 50 or older). Next year, though, more high-income people will be eligible to contribute to Roth IRAs. The income phase-out range for taxpayers making these payments has been increased by the IRS. Single filers will pay $129,000 to $144,000, while married couples filing jointly would pay $204,000 to $214,000 in taxes.
Understanding the changes that will occur in the new year can have a significant impact on your financial situation. Meet with a financial adviser to devise a strategy for achieving your retirement objectives.
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