In the past, retirement income planning has often been straightforward. Reliable strategies have usually included reducing and deferring income, shifting income, and increasing deductions. But this year, many federal tax policies and priorities remain in flux.
While planning for 2022 may be more challenging, a recent blog from Nationwide Financial shows how planning for retirement can not only help a client with their long-term financial goals, but also in the near term during tax time.
For example, clients may want to optimize their retirement plan contributions. The maximum allowable 401(k) contribution for 2022 is $20,500, with a $6,500 additional contribution, if the plan allows, for taxpayers who are 50 and over.
“These contributions are made with pretax money, lowering the client’s overall tax bill for the year,” the blog advises. “Even if the client can’t contribute the maximum amounts, they should make sure they are contributing enough to take full advantage of any employer match.” Clients are also encouraged to contribute to an individual retirement account (IRA).
For clients aged 72 or older, it’s important that they take required minimum distributions (RMDs) from their qualified plans and IRAs.
“If you have a client who is 70½ or older and would like to donate more to charity, remember that up to $100,000 can be distributed from their IRA to a charity, and it can be used to satisfy their RMD,” the blog states. “This qualified charitable distribution (QCD) must be made directly from their IRA to the charity to avoid inclusion in income, and it must be made to a qualified public charity.”
And for those who are eligible, a Roth conversion could make sense. It could be beneficial to convert some or all of a traditional IRA account to a Roth IRA if the client expects to be in a lower income tax bracket for 2022 than in future years. It should be noted, however, that while this transaction will result in taxable income this year, future income from the Roth IRA will be tax-free, provided of course that certain distribution rules are followed.
Regardless of the changes within the tax law, there are still several reliable tax planning strategies that can help clients save money in the short term while investing for the long term.
Nationwide offers a variety of actively managed ETFs for advisors that cater to a range of investment exposures and strategies for those seeking retirement income options for their clients as part of their bigger retirement planning picture.
For more news, information, and strategy, visit the Retirement Income Channel.