The IRS has recently announced that the amount individuals can contribute to their 401(k) plans in 2022 has increased to $20,500, up from $19,500 for 2021 and 2020. Also, the IRS issued [in Notice 2021-61] guidance on all of the cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2022.
Highlights of changes for 2022
The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan increases to $20,500, up from $19,500.
The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs, and to claim the Saver’s Credit all increases for 2022.
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or the taxpayer’s spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. If neither the taxpayer nor the spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.
The income phase-out range for taxpayers making contributions to a Roth IRA increases 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 income phase-out range increases to $204,000 to $214,000, up from $198,000 to $208,000. 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 $0 to $10,000.
The amount individuals can contribute to their SIMPLE retirement accounts increases to $14,000, up from $13,500.
Key employee contribution limits that remain unchanged
The limit on annual contributions to an IRA remains unchanged at $6,000. The IRA catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $6,500. Therefore, participants in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan who are 50 and older can contribute up to $27,000, starting in 2022. The catch-up contribution limit for employees aged 50 and over who participate in SIMPLE plans remains unchanged at $3,000.
For more information on the adjustments to the 401(k) regulations and other retirement-related cost-of-living adjustments, refer to the link below to the IRS Notice 2021-61 or please contact one of the experienced tax professionals at Bormel, Grice & Huyett P.A. – 410-792-7259.