On November 4th, 2021, the Internal Revenue Service announced 401(k) contributions for individuals have been increased to $20,500. For tax years 2020 and 2021, the maximum was contribution was limited to $19,500. The IRS also issued technical guidance regarding cost of living adjustments affecting dollar limits for pension plans and other retirement-related items for tax year 2022 in Notice 2021-61.
Highlights of changes for 2022
Previously, the contribution limit for employees who take part in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan was $19,500, but has now been increased to $20,500.
In addition to the limit increase for 401(k) contributions, the IRS also increased 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 for 2022.
Taxpayers can deduct contributions to a traditional IRA if they meet the required conditions. If taxpayers and/or their spouse were covered by a retirement plan through their employer, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. However, if neither the taxpayer or their spouse were covered by a retirement plan by their employer the phase-outs of the deduction do not apply.
If this applies to you, here are the phase-out ranges for 2022:
- For single taxpayers covered by their employer’s retirement plan, the phase-out range has increased from $66,000 – $76,000, to $68,000 – $78,000.
- For married couples filing jointly, if the spouse making the IRA contribution is covered by their employer’s retirement plan, the phase-out range has increased from $105,000 – $125,000, to $109,000 – $129,000.
- For an IRA contributor who is not covered by their employer’s retirement plan and is married to someone who is covered, the phase-out range has increased to $204,000 -$214,000. (Previously $198,000 – $208,000.)
- For a married individual filing a separate return who is covered by their employer’s retirement plan, the phase-out range remains the same at $0 – $10,000.
If you are contributing to a Roth IRA, please note the following increases:
- The income phase-out range for taxpayers increased to $129,000 – $144,000.
- For singles and heads of household, increased from $125,000, to $140,000.
- For married couples filing jointly, the income phase-out range increased from $198,000 to $208,000, to $204,000 to $214,000.
- The phase-out range for a married individual filing a separate return who contributes to a Roth IRA, remains the same at $0 – $10,000.
For the Saver’s Credit (also known as the Retirement Savings Contributions Credit), the individuals’ income limit has increased as well depending on their filing status.
- For single filers, the income limit increased to $34,000 from $33,000.
- For married couples filing jointly, low to moderate income workers, the income limit increased to $68,000 from $66,000.
- Heads of household filers increased to $51,000 from $49,500.
- For married couples filing separately, the income limit increased to $34,000 from $33,000.
The amount individuals can put towards SIMPLE retirement accounts is increased 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. For individuals aged 50 and over, the IRA catch-up contribution limit still stands at $1,000 and, is not subject to an annual cost-of-living adjustment.
The catch-up contribution limit for employees aged 50 and over who take part 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. Employees aged 50 or older who contribute to SIMPLE plans, the catch-up limit remains unchanged at $3,000.
To learn more about these details on these specifics and other retirement-related cost-of-living adjustments for 2022 are in Notice 2021-61.
KRS professionals are available and happy to provide guidance. Please contact us if you have any questions, concerns.