Thanks to a higher-than-normal annual inflation rate of 5.4%, the Internal Revenue Service (IRS) says it will allow taxpayers to contribute up to $20,500 to their 401(k) and some other retirement accounts in 2022, a $1,000 boost from 2021 contribution limits.
2022 annual contribution limit for 401(k), 403(b), most 457, and Thrift Savings Plans. If you are 50 or older, you can stash away an additional $6,500 for a total of $27,000.
This change is mandated by the tax code so there is no requirement for Congress to act. The benefit normally only goes to a relatively small number of taxpayers since most people do not max out their 401(k) contributions. A 2021 Congressional Research Service report indicated that just 8.5% of defined contribution plan participants max out their contributions.
- The maximum contribution taxpayers can make to 401(k) plans in 2022 is $20,500.
- For taxpayers 50 and older, an additional $6,500 catch-up amount brings the total to $27,000.
- The $20,500 limit also applies to 403(b) and most 457 plans.
- Contributions to IRAs remain limited to $6,000. Also unchanged: the $6,500 catch-up limit on 401(k) plan contributions for those 50 and older.
- Income ranges that determine eligibility to deduct contributions to traditional Individual retirement arrangements (IRAs), to contribute to Roth IRAs, and to claim the Saver's Credit all increased for 2022.
- 8.5% of defined contribution plan participants and 4.7% of IRA account holders max out their annual contributions.
Even if you do max out your 401(k) contributions, be aware that the November 3 draft of the $1.85 trillion Build Back Better Act, proposes limits on contributions and accelerated distributions for high-balance retirement accounts, as well as the elimination of backdoor Roth IRAs and aftertax 401(k) contributions.
Contribution Limits That Went Up
In addition to the new $20,500 contribution limit on 401 (k) plans, contribution limits for 403(b) and most 457 plans, and the federal government's Thrift Savings Plans also increased from $19,500 to $20,500 for 2022.
Income ranges for determining eligibility to deduct contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs, and to claim the Saver's Credit all increased for 2022 as well.
If you (or your spouse) are NOT covered by a retirement plan at work, the phase-outs described below do not apply.
- Single taxpayers covered by a workplace retirement plan can deduct up to the $6,000 limit ($7,000 if 50 or older) if their income is below $68,000. Phaseout begins at $68,000 and ends at $78,000, ($66,000 to $76,000 in 2021).
- Married couples filing jointly, when both are covered by a workplace retirement plan, can deduct up to the limit for income below $109,000 in 2022. Phaseout begins at $109,000 and ends at $129,000 ($105,000 to $125,000 in 2021).
- If you contribute to an IRA but are not covered by a workplace retirement plan and are married to someone who is covered, the phase-out range for 2022 goes up to $204,000 to $214,000, up from $198,000 to $208,000 in 2021.
- For a married individual filing a separate return who is covered by a workplace retirement plan, the income phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
- Single taxpayers and heads of household can make the full $6,000 ($7,000 if 50 or older) contribution for income under $129,000. Phaseout begins at $129,000 through $144,000 for 2022. It was $125,000 to $140,000 in 2021.
- For married couples filing jointly, income phase-out begins at $204,000 to $214,000 for 2022 ($198,000 to $208,000 for 2021).
- A married individual filing a separate return has a phase-out income range of $0 to $10,000, no change from 2021.
Saver's Credit and SIMPLE Account Limits
The income limit to claim the Saver's Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers for 2022 is:
- $68,000 for married couples filing jointly, up from $66,000 in 2021
- $51,000 for heads of household, increased from $49,500
- $34,000 for singles and married individuals filing separately, up $1,000 from $33,000
The amount you can contribute to your SIMPLE retirement accounts increased $500 to $14,000 for 2022, up from $13,500 in 2021.
Contribution Limits That Stayed the Same
If you contribute to an individual retirement account (IRA) your contribution limit remains the same as last year at $6,000. Your catch-up limit if you are 50 or older also remains the same at $1,000. Roughly 4.7% of IRA account holders contribute at the limit each year, according to the Investment Company Institute.
Other catch-up limits, including the $6,500 catch-up contribution limit for people 50 and older in 401(k) and 403(b) plans, most 457 plans, and the federal government Thrift Savings Plan also remain the same as they are not tied to inflation.
Still to Come
The IRS has not yet announced changes in standard deduction amounts, tax bracket thresholds, and other items included in the tax code. Analysts, including Bloomberg Tax & Accounting, expect a jump of about 3% due to the high inflation experienced in 2021.
What is the IRA contribution limit for 2022?
$6,000, the same as 2021. If you are 50 or older, you can contribute an additional $1,000 for a total of $7,000.
What is the Saver's Credit?
The Saver's Credit (also known as the Retirement Savings Contributions Credit) is a non-refundable tax credit of up to $1,000 ($2,000 if married filing jointly) for low- and moderate-income taxpayers who contribute to a retirement savings plan. The exact amount of your credit is based on how much money you contributed and what percentage of your contributions qualify.
What's the Maximum Amount a Couple Can Contribute to a 401(k) in 2022?
First, understand that 401(k) accounts are individual by law. Two people cannot own the same 401(k) account. That said, for 2022, if you are under the age of 50, you and your spouse can each contribute $20,500 to your own 401(k) accounts for a total of $41,000 in contributions. If either of you is 50 or older, you can contribute an additional $6,500. If both of you are 50+, each can do so. The total at that point would be $54,000.