IRS Increases 401(k) Contribution Limit for 2022 Tax Year
As the new year approaches, the Internal Revenue Service (IRS) has announced some changes to its retirement account contribution limits as part of its regular cost‑of‑living adjustments. Most notably, this includes an increase in the total amount employees can contribute to their 401(k) during the tax year. Additionally, income limits for IRAs and the Saver’s Credit have been adjusted upwards as well.
Next year, the employee contribution limit for 401(k) plans as well as 403(b)s and most 457 plans will be $20,500. That’s up $1,000 from the current $19,500 limit, which has been in place since 2020. Meanwhile, those that contribute to SIMPLE retirement accounts will now see a limit of $14,000 for 2022 compared to 2021’s $13,500 limit.
Notably, despite the 401(k) contribution adjustment, the $6,000 annual contribution limit for IRAs (plus an extra $1,000 catch-up contribution limit for those 50 and older) will remain unchanged for the 2022 tax year. However, income ranges for Roth IRA contributions and traditional IRA deductions will shift upward. Next year, the phase-out range for those filing individually will begin at $68,000 and cut off $78,000 — up from the current $66,000 to $76,000 range.
Married couples filing jointly (and where the spouse making contributions is covered by a workplace retirement plan) will now see a phase-out range of $109,000 to $129,000 instead of $105,000 to $125,000. Meanwhile, for married couples filing jointly where the IRA contributor is not covered by a workplace retirement plan (but is married to someone who is), the phase-out range will climb from $204,000 to $214,000, which marks a $6,000 increase.
Turning to Roth IRAs, the phase-out range for contributions will now be $129,000 to $144,000 for singles and heads of household (an increase of $4,000) while the phase-out range will adjust to $204,000 to $214,000 (instead of $198,000 to $208,000) for married couples filing jointly.
Lastly, income limits for the Retirement Savings Contributions Credit — better known as the Saver’s Credit — have also been adjusted. This benefit will now top out at $34,000 in adjusted gross income for individuals, $51,000 for heads of households, and $68,000 for married couples filing jointly. Previously these limits sat at $33,000; $49,500; and $66,000 respectively. These figures represent the limits for which the credit drops to 0%, while separate tier limits for the 10%, 20%, and 50% contribution credits are in place. For example, the 50% contribution credit will be available for individuals with adjusted gross incomes of no more than $20,500 while married couples filing jointly with AGIs of no more than $41,000 can also claim this level of credit.
These adjusted limits are welcome news for taxpayers who are saving for their retirements. In particular, the Saver’s Credit can be a great benefit for those who are saving a significant amount of their income as they can earn up to 50% of their contributions as a tax credit — even on Roth contributions. Thus, with the new year approaching, now is a great time for employees to reassess their retirement contributions and see if adjustments can be made.