Helpful Planning Reminders for 2022
2022 brought some changes to estate and gift tax exemptions, as well as retirement account contribution limits. Understanding these various exemptions and limits can be helpful for estate planning, gifting, and saving. Below is a quick summary:
Estate Tax Exemption
The federal estate tax exemption has an annual adjustment for inflation. That annual adjustment brings the estate tax exemption up to $12,060,000 per person for 2022. This number represents the amount of assets that a decedent can pass to his or her heirs, or other beneficiaries, free of federal estate tax. Per current law, this historically high federal estate tax exemption is scheduled to sunset at the end of 2025. If no action is taken by Congress before then, the federal estate tax exemption will revert to $5,000,000 as indexed for inflation on January 1, 2026. It is important to note that various states have their own state tax exemption. Vermont’s is currently $5,000,000 in 2022.
Gift Tax Annual Exclusion
The gift tax annual exclusion allows an individual to make gifts without impacting their lifetime gift tax exemption, which is currently equal to the federal estate tax exemption of $12,060,000. The annual gift tax exclusion for 2022 has been increased by $1,000 to $16,000 per person, with no limitation on the number of people that you can make gifts to.
Retirement Account Contribution Limits
If you have a 401(k) or 403(b) retirement account, you can contribute up to $20,500 to your plan in 2022. Furthermore, if you are 50 or older, you may contribute an additional $6,500 in 2022 per the “catchup” provision. The annual contribution limit for IRAs remains unchanged from 2021. An individual can contribute up to $6,000 to an IRA in 2022. If an individual is 50 or older, they can contribute an additional $1,000 per the “catch up” provision in 2022. The combined annual contribution limit for Roth and traditional IRAs is $6,000, or $7,000 if you’re age 50 or older for the 2021 and 2022 tax years. You can contribute to an IRA if you or your spouse have earned income. Contributions and deductibility are subject to modified adjusted income limits. Consult your tax preparer for eligibility.