Eric Sheldon CPA, PC

Tax Tips for Retirees and Retirement Accounts

For many years, IRS rules stated that taxpayers could not keep retirement funds in their retirement accounts indefinitely. They must start taking withdrawals from their IRA, SIMPLE IRA, SEP IRA, or retirement plan account when they reach age 70 1/2. These withdrawals are known as required minimum distributions or RMDs.

However, the Setting Every Community Up for Retirement Enment (SECURE Act), enacted into law in 2019, changed the rules. As such, if your 70th birthday is July 1, 2019, or later, you do not have to take withdrawals until you reach age 72.

Did you turn 72 in 2022?

If you turned 72 this year, here is what you need to know about taking required minimum distributions (RMDs):

Generally, taxpayers reaching age 72 after July 1, 2022, must begin taking required minimum distributions before the end of the tax year (December 31). A special rule, however, allows first-year recipients of these payments, those who reached age 72 during 2022, to wait until as late as April 1, 2023, to receive their first RMDs. The advantage of this special rule is that although payments made to these taxpayers in early 2023 (up to April 1, 2023) and can be counted toward their 2022 RMD, they are taxable in 2023.

The special April 1 deadline only applies to the RMD for the first year; for all subsequent years, the RMD must be made by December 31. For example, a taxpayer who turned 72 in 2021 and received the first RMD (for 2021) on April 1, 2022, must still receive a second RMD (for 2022) by December 31, 2022.

The RMD for 2022 is based on the taxpayer’s life expectancy on December 31, 2022, and their account balance on December 31, 2021. An IRA trustee must either offer to calculate it for the owner or report the amount of the RMD to the IRA owner on Form 5498.

For most taxpayers, the RMD is based on Table III (Uniform Lifetime Table) in IRS Publication 590-B. For example, for a taxpayer who turned 72 in 2021, the required distribution would be based on a life expectancy of 27.4 years. A separate table, Table II, applies to a taxpayer whose spouse is more than ten years younger and is the taxpayer’s only beneficiary. If you need assistance with this, don’t hesitate to call.

Though the RMD rules are mandatory for all owners of traditional, SEP, and SIMPLE IRAs and participants in workplace retirement plans, some people in workplace plans can wait longer to receive their RMDs. Usually, if their plan allows it, employees who are still working can wait until April 1 of the year after they retire to start receiving these distributions. There may, however, be a tax on excess accumulations. Employees of public schools and certain tax-exempt organizations with 403(b) plan accruals before 1987 should check with their employer, plan administrator, or provider to see how to treat these accruals.

Also of note is that Roth IRAs do not require withdrawals until after the owner’s death. There are also special rules for owners of inherited IRAs.

Contribution Limits

For 2022, the elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is $20,500. For persons age 50 or older in 2022, the limit is $27,000 ($6,500 catch-up contribution).

Retirement Savings Contributions Credit (Saver’s Credit)

In 2022, the adjusted gross income limit for the saver’s credit for low and moderate-income workers is $68,000 for married couples filing jointly, $51,000 for heads of household, and $34,000 for married individuals filing separately and for singles. The maximum credit amount is $2,000 ($4,000 if married filing jointly). As a reminder, starting in 2018, the Saver’s Credit can be taken for your contributions to an ABLE (Achieving a Better Life Experience) account if you’re the designated beneficiary. However, keep in mind that your eligible contributions may be reduced by any recent distributions you received from your ABLE account.

Cost of Living Adjustments

Cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for 2023 are as follows:

401(k), 403(b), 457 plans, and Thrift Savings Plan. Contribution limits for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan increases to $22,500, up from $20,500. The catch-up contribution limit for employees aged 50 and over increases to $7,500, up from $6,500 in 2022.

SIMPLE Retirement Accounts. Contribution limits for SIMPLE retirement accounts for self-employed persons increases to $15,500, up from $14,000. The catch-up contribution limit for employees aged 50 and over also increases from $3,000 to $3,500.

Traditional IRAs. The limit on annual contributions to an IRA increases to $6,500, up from $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. However, suppose during the year, a retirement plan at work covered either the taxpayer or their spouse. In that case, the deduction may be reduced or phased out until it is eliminated, depending on filing status and income. If a retirement plan at work covers neither the taxpayer nor their spouse, the phase-out amounts of the deduction do not apply.

The phase-out ranges for 2023 are as follows:

For single taxpayers covered by a workplace retirement plan, the phase-out range is $73,000 and $83,000, up from between $68,000 and $78,000.

For married couples filing jointly, where a workplace retirement plan covers the spouse making the IRA contribution, the phase-out range is $116,000 and $136,000, up from between $109,000 and $129,000.

For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $218,000 and $228,000, up from between $204,000 and $214,000.

For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The income phase-out range for taxpayers making contributions to a Roth IRA is increased to between $138,000 and $153,000 for singles and heads of household (up from between $129,000 and $144,000). For married couples filing jointly, the income phase-out range is increased to between $218,000 and $228,000, up from between $204,000 and $214,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains between $0 and $10,000.

If you have any questions about retirement plan contributions, call the office for assistance.

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About the Author

Eric Sheldon

Eric Sheldon

Eric Sheldon is a certified public accountant with more than 25 years of experience in a wide variety of industries. He's the owner/operator of Eric Sheldon CPA, PC, an accounting firm that specializes in providing tax strategy and preparation, accounting, and bookkeeping services to individuals and small business owners.

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