It’s almost 2022 and there’s some news you need to let employees know about. The IRS raised 401(k) contribution limits $1,000 from 2021. So, for 2022, employees can stash away up to $20,500 in their 401(k), 403 (b) and the federal government’s Thrift Savings Plan.
This is thanks to a higher-than-normal annual inflation rate of 5.4%. And because this was a tax code mandate, Congress doesn’t need to act.
While this may not affect a lot of people – few employees max out their 401(k) contributions – there are 8.5% of those who do, according to a 2021 Congressional Research Service report. But it’s always important to keep employees updated on 401(k) news.
Other news you should share:
- Employees 50 and older can play catch up by contributing an additional $6,500 to their 401(k) and retirement plans, bringing the total for 2022 to $27,000.
- IRA contributions haven’t changed. They’re still limited to $6,000.
- For 2022, all eligibility income ranges that determine if someone can deduct from traditional IRAs, contribute to Roth IRAs, and claim the Saver’s Credit increased.
Even if employees don’t max out their 401(k) contributions, they should be educated about the Build Back Better Act’s Nov. 3, 2021, draft. In it, limits are placed on contributions and accelerated distributions for high-balance retirement accounts. It also eliminates backdoor Roth IRAs and after-tax 401(k) contributions.
If employees have a traditional IRA, they can deduct contribution if they meet the specific conditions. If an employee or their spouse was covered by a retirement plan at work during the year, the deduction can be phased out. But that depends on the filing status and income. However, if neither the employee nor the spouse is covered by a retirement plan at work, the phase-out doesn’t apply.
For 2022 the phase out ranges are:
- $68,000 to $78,000 (up $2,000) for single taxpayers covered by a workplace retirement plan
- $109,000 to $129,000 (up $4,000) for married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan
- $204,000 to $214,000 (up $6,000) for an IRA contributor not covered by a workplace retirement plan and married to someone who is covered, and
- the phase-out range isn’t subject to an annual cost-of-living adjustment and remains $0 to $10,000 for a married individual filing a separate return who’s covered by a workplace retirement plan.
As for Roth IRAs, the income phase-out range for employees making contributions:
- increases $4,000 ($129,000 to $144,000) for singles and heads of household
- increases $6,000 ($204,000 to $214,000) for married filing jointly, and
- remains $0 to $10,000 for a married person filing a separate return.
Saver’s Credit (aka: Retirement Savings Contributions Credit) income limits are up:
- $2,000 ($68,000) for low- and moderate-income workers married filing jointly
- $1,500 ($51,000) for heads of household, and
- $1,000 ($34,000) for singles and married people filing separately.
Finally, the amount individuals can contribute to their SIMPLE retirement accounts increased $500 from last year and is now $14,000.