New Year, New Numbers
As you ring in the New Year and set your financial goals for the year to come, you should take notice of changes to estate and gift tax exemptions as well as increased retirement account contribution limits that present opportunities for both gifting and saving in 2022. All references in this article to the estate and gift tax exemptions apply to the federal tax scheme, as New Hampshire continues to impose no state-level estate or gift tax.
Estate Tax Exemption
In 2017, the federal estate tax exemption was set at $10,000,000, with an annual adjustment for inflation. That annual adjustment brings the estate tax exemption up to $12,060,000 for 2022. In general terms, for people who die in 2022, this figure represents the amount of wealth the decedent can pass to heirs or other beneficiaries free of federal estate tax.
Under current law, the historically high estate tax exemption is scheduled to sunset at the end of 2025 and, if no further action is taken by Congress, it will revert to $5,000,000 as indexed for inflation on January 1, 2026. Although early versions of the Build Back Better Act included significant reductions to the estate tax exemption, the most recent version does not appear to include provisions that would make changes to the current law. However, this bill is far from being signed into law and it will be important to keep an eye on how any changes to the estate tax exemption could impact your estate plan.
Gift Tax Annual Exclusion
The gift tax annual exclusion allows you to make certain gifts without eating into your lifetime gift tax exemption (which currently mirrors the estate tax exemption). The annual gift tax exclusion for 2022 has been increased to $16,000 per donee with no limitation on the number of donees 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. This contribution limit also applies to most 457 plans and the federal government’s Thrift Savings plan. In addition, if you are 50 or older, you may contribute an additional $6,500 in 2022. This is often referred to as the “catch-up amount.”
The annual contribution limit for IRAs remains unchanged. You can contribute up to $6,000 to your IRA in 2022 and, if you are 50 or older, you have the opportunity to make an additional “catch-up contribution” of $1,000 in 2022.
As always, if you have any questions, please do not hesitate to reach out. Wishing you a very Happy New Year!