Consider using tax-advantaged accounts to help lower your tax bill.
Even in the wake of complex tax provisions, a key to lowering your tax bill is really quite simple: report lower taxable income.
Since few of us actually want to earn less, the next option to consider is to stash as much income as you can into tax-advantaged accounts. If you haven’t contributed the maximum amount to a qualified retirement plan at work, consider adding money while you can.
Contribution limits for 401(k) and other retirement plans for the 2022 tax year are $20,500 or $27,000 if you’re 50 or older (2021: $19,500 and $26,000).
Consider making additional salary deferrals if you are eligible to participate in an employer supplemental employee retirement plan (SERP). This will enable you to further maximize contributions to reduce your taxable income now and defer more compensation into later years when your tax rate may be lower.
You can accumulate funds on a tax-deferred basis to pay for healthcare expenses through a health savings account (HSA) or flexible savings account (FSA). Your workplace may offer one, both or neither of these options, so check with your employer. HSA contribution maximums in 2022 are $3,650 for self-only and $7,300 for families, with an additional $1,000 catch-up contribution allowed for individuals age 55 or older (2021: $3,600 and $7,200). The limit for individual health FSA contributions remains $2,750 (note that dependent care FSAs have a higher cap of $10,500); employer contributions do not count toward this maximum.
Once you maximize employer retirement plans, consider contributing to an IRA (still a $6,000/year limit, or $7,000 if you’re 50 or over). Traditional IRA contributions are tax deductible if your modified adjusted gross income is under $78,000 for individuals (phase-outs begin at $68,000) or $129,000 for joint filers (phase-outs begin at $109,000). You must establish a new IRA account by April 15, 2023, for 2022 contributions, and you have until then to make 2022 contributions to an IRA.
If you work for yourself, consider contributing to a solo 401(k) retirement plan, SEP IRA or SIMPLE plan.
Your financial advisor can help develop a retirement account contribution strategy that’s tailored to your unique situation.
Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, Atlantic Union Bank Wealth Management advisors do not render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.
Contributions to a traditional IRA may be tax-deductible depending on the taxpayer’s income, tax-filing status and other factors. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty.
Atlantic Union Bank Wealth Management is a division of Atlantic Union Bank that offers asset management, private banking, and trust and estate services. Securities are not insured by the FDIC or any other government agency, are not deposits or obligations of Atlantic Union Bank, are not guaranteed by Atlantic Union Bank or any of its affiliates, and are subject to risks, including the possible loss of principal. Deposit products are provided by Atlantic Union Bank, Member FDIC.