The IRS recently announced that the amount individuals can contribute to their 401(k) plans will increase in 2022. The tax agency has also announced other cost-of-living adjustments affecting dollar limitations for pension plans and retirement-related items for tax year 2022. Let’s look at some highlights.
First and foremost, the contribution limit for employees who participate in 401(k), 403(b) and most 457 plans, as well as the federal government’s Thrift Savings Plan, will increase to $20,500. That’s up from $19,500 in 2020 and 2021.
The catch-up contribution limit for employees age 50 and over who participate in the plans mentioned remains unchanged at $6,500. Therefore, participants in the plans mentioned who are 50 and older can contribute up to $27,000, starting in 2022.
The amount individuals can contribute to their Savings Incentive Match Plans for Employees (SIMPLEs) will increase from $13,500 to $14,000. The catch-up contribution limit for employees age 50 and over who participate in SIMPLEs will stay $3,000.
The limit on annual contributions to an IRA will remain unchanged at $6,000 next year. The IRA catch-up contribution limit for individuals age 50 and over isn’t subject to an annual cost-of-living adjustment, so it will remain $1,000. However, the income ranges for determining eligibility to make deductible contributions to traditional IRAs and to contribute to Roth IRAs will increase for 2022.
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. However, if either the taxpayer or the taxpayer’s spouse was covered by an employer’s retirement plan during the year, the deduction may be reduced (phased out) or eliminated. If neither the taxpayer nor the spouse is covered by a retirement plan at work, the phaseouts of the deduction don’t apply. Here are the phaseout ranges for 2022:
The range for taxpayers making contributions to a Roth IRA will increase to $129,000 to $144,000 for singles and heads of household, up from $125,000 to $140,000. For married couples filing jointly, the range rises to $204,000 to $214,000, up from $198,000 to $208,000. And the range for a married individual filing separately who contributes to a Roth IRA isn’t subject to an annual cost-of-living adjustment. It remains $0 to $10,000.
Employers can encourage participation in their plans and help their employees save for retirement by communicating contribution limit changes every year. Make sure your workers know what’s up. And for more information on the tax impact of a retirement plan you’re either administering or considering, please contact us.