It's fall. (Where did the summer go?) Around this time of year, it's natural to start thinking about -- and planning for -- all things financial before year end.
First, taxes: If you filed an extension with the IRS earlier this year in relation to tax year 2021, you have until Oct. 17 to file your 2021 tax-year return. The IRS received about 19 million requests for extensions this year (tinyurl.com/3w4nr48m), and notes that if there are taxes owed, then sending the full payment with the return can prevent additional interest and penalties. Tips for taxpayers who haven't filed their 2021 tax-year return are available at tinyurl.com/57pdtvzw.
Tax withholding: This also is a good time to review your 2022 withholding to see if you want to adjust the amount being taken out of your paycheck for the final few months of the year. The IRS has a Tax Withholding Estimator (tinyurl.com/3yzjwp4b) to help taxpayers with the calculations. Many states offer similar calculators to estimate state tax liability for residents and workers, so be sure to check that, too.
Social Security: For those receiving Social Security, the cost-of-living adjustment (COLA) is expected to be announced by the Social Security Administration in mid-October. Various estimates have pegged it as being higher than last year's 5.9%, with the latest Senior Citizens League projection for 2023 being 8.7% (tinyurl.com/2p972ymh).
401(k)s: Meanwhile, if you have 401(k)s and/or individual retirement accounts (IRAs), there are several things to pay attention to in the next few months.
For starters, there could be an increase in 401(k) contribution limits for 2023. The secretary of the Treasury, under Section 415 of the Internal Revenue Code, is required to "annually adjust these limits for cost-of-living increases," as pointed out in IRS Notice 2021-61 (tinyurl.com/mtb32z3k). Last year, the IRS unveiled the limits for 2022 in November 2021.
Other key details that will be announced include the income ranges for eligibility for making deductible contributions to traditional IRAs. Also revealed will be the limit on annual contributions to an IRA. I'll have more on this once the announcement is made.
RMDs: Speaking of the IRS, required minimum distributions (RMDs) for 2022 for retirement accounts are due by Dec. 31, and the failure to take them can involve a 50% penalty on the amount that needed to be taken but was not (tinyurl.com/2j8e5828). This is also true for those who inherited a retirement account during the year for which an RMD had not yet been taken for 2022.
There is an added twist this year for inherited retirement accounts. Last February, the IRS posted proposed regulations about RMDs in the Federal Register (tinyurl.com/ycknzc4d). The regulations were designed to clarify changes made by the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. Among the clarifications was a surprise for those inheriting IRAs where the original owner was taking RMDs: The original belief under the SECURE Act was that the account had to be emptied in 10 years, but there were no RMDs for years one through nine; the proposed regulation by the IRS said there would be distributions for those years (with some exceptions).
An additional challenge: These regulatory clarifications are slated to take effect beginning Jan. 1, 2022, but as of this writing, final regulations have not been adopted.
While the IRS might issue further guidance on the proposed regulations before year's end, if you are in this situation, it's important to consult with your CPA about how to handle an inherited retirement account.
Searching for 2022's 401(k) Champion: Now is also the time for 401(k) participants to apply for the 2022 title of 401(k) Champion.
If you are not familiar with this pro bono financial literacy effort that I fund and sponsor yearly, please write to me at Readers@juliejason.com. The goal is to encourage employees to learn about their 401(k) plans enough to write an essay about how to use the 401(k) to save for retirement. If you are an influencer, ask yourself, does it help your company to encourage employees to understand the benefits of 401(k) participation? Go to 401kchampion.com for more details.
DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION