2022 Retirement Planning: The New Rules Explained

Updated on May 18th, 2022
Conversation About Retirement

Sure, cover the essentials. Do retirement things year after year. What if you’re slower? Increase your contribution rate, even just 1% annually.

Basics Of Retirement Planning

Sure, cover the essentials. Do the right things year after year. However, you should do specific things to ensure a secure retirement, said Kirsten Hunter Peterson. Ms. Peterson is director of Fidelity Investments’ Workplace Thought Leadership team.

The simplest thing to do is not to leave money on the table, Peterson said. In other words, that includes maxing out your 401(k) or comparable plan to maximize your employer’s contribution. You’re refusing free money.

However, saving enough is another essential retirement planning strategy. In other words, Fidelity suggests 15%. This includes any business match or donation. If you save 10% and your company contributes 5%, you’ll reach the 15% goal.

What if you’re slower? Increase your contribution rate, even if it’s just 1% annually. Small gains build up. And don’t forget to pay down debt.

Boost 401(k) Contributions

Assume you’re 45. IRA owned $63,000 by mid-2020. At Fidelity, leaders took the averages of 45-year-old IRA holders. Assume your IRA grows at 7% annually.

Say you make $60,000. You earn 1% yearly increases and save 6% of your salary. Get a 3% corporate match.

So, what? Your retirement fund would be $849,551 by age 72.

What happens if you increase your retirement contributions by 1% every year until you and your employer contribute 15% annually? Then keep it up till retirement.

However, according to the Bankrate.com 401(k) calculator, you’ll have $1.019 million by 72. Over five years, a 1% annual rise results in a 20% gain of almost $169,400. A good deal. And in this case, your contribution increases are around tenths of your yearly wage hikes.

Savings Success

However, beyond that, intelligent retirement planning needs to understand the new requirements for 2022.

First, note which federal tax collectors target retirement funds.

Consider President Joe Biden’s Build Back Better (BBB) budget proposal. Certainly, if the Senate adopts the BBB as written, it will fund itself via multiple direct and indirect taxes on retirement savings.

However, one tax begins next year. Backdoor Roth IRA conversions would be prohibited. Currently, such conversions allow you to circumvent the $140,000 income cap on Roth IRA contributions. It’s time to invest in a nondeductible conventional IRA. Those aren’t income-based. Then into a Roth IRA we go!

No new regulations. You’d lose the right to keep the money forever. Certainly, it would no longer be inherited and held for up to ten years. More information is available through AARP.

Understanding New Taxes

Two new retirement taxes will go into force if the Senate approves them in 2029. That allows you time to increase revenue in earlier years. That may keep you below the new income levels — $400,000 for single taxpayers and $450,000 for married joint filers — that trigger the new regulations.

However, another approach to deal with higher retirement taxes? Investing in many accounts with varying tax treatment, said Roger Young, senior retirement insights manager at T. Rowe Price.

One tax will prohibit new contributions if your entire IRA and 401(k) balances exceed $10 million. Therefore, if not saved in a retirement plan, that income would be taxed.

One is indirect. The year following that, you’d have to withdraw 50% of your money. The tax laws assess tax on this money except in a Roth.

However, if your total retirement account balances exceeded $20 million, you’d have to pay it all out.

And don’t assume they are only problems for the wealthy. Many middle-class employees become retirement billionaires, says IRAHelp.com founder Ed Slott. Assume a couple earns reasonable wages. For example, they began saving early. Many retire with $5 million by age 60. Certainly, they can treble it soon.

Inflation-Proof Your Retirement

However, keep a watch on rising inflation. Your best ally? Certainly, proper retirement planning includes investing in funds that outperform inflation. That includes S&P 500 index funds. These include commodities, real estate investment trusts (REITs), and cyclical stocks.

See the other report in this area for further information.

New Contribution Caps

You must also keep track of which IRAs have updated contribution limitations. After all, you want to save as much as you can. That’s the maximum permitted in tax-deferred RRSPs.

It also positions you to get the highest employer contributions.

Here are the maximum donations for 2022:

  • $25,900 in 2022 for married filing jointly.
  • Amount: $6,500, unchanged from 2021.
  • IRA: $6,000, same as 2021.
  • $1,000 Traditional or Roth IRA catch-up. This is for people 50 years and older.

Finally

Stay on task. Don’t let distractions throw you. You know your goals. The prize is clear. And attainable. So avoid muddying the waters. Keep your financial advisors on call 24/7. Never let them forget who’s money it is. It’s yours. Not theirs. So they better be babying it. Growing it. And cherishing it. Or you give them the old heave-ho!

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