The IRS has released the 2022 contribution limits for retirement plans and other cost-of-living adjustments. 

Maximum Employee Contributions to Defined Contribution Plans: Increase

For employees with 401(k), 403(b), Roth 401(k), most 457 plans, or the federal government’s Thrift Savings Plan, the contribution limit will increase $1,000 to 20,500 in 2022.

Is maxing out your 401(k) enough? Here’s what it could get you in retirement.

Annual Catch-up Contributions for Employees Over 50: Unchanged

Workers over 50 years old with defined contribution plans (401(k), 403(b), most 457 plans, or the federal government’s Thrift Savings Plan) can expect no increase on the catch-up contribution limit. The catch-up contribution is $6,500 in 2022. In total, individuals 50+ can save $27,000 per year in a defined contribution plan.

Overall Contribution Limit (Employer + Employee) for Defined Contribution Plans: Increase

The overall annual additions limit has increased $3,000 to $61,000 in 2022. The total sum of employee contributions, employer additions, and employer profit-sharing contributions cannot exceed $61,000. Catch-up contributions for individuals age 50 or older are not included in the overall limit. 

Self-employed and Small Business Owners: SEP IRA and Solo 401(k) Limits: Increase

The total annual contribution limit for both SEP IRAs and Solo 401(k)s will increase $3,000 to $61,000 in 2022. However, the amount that can actually be added each year is subject to an additional limitation: a percentage of W-2 earnings or net self-employment income. In 2022, the compensation limits for these calculations increased $15,000 to $305,000. 

SEP IRAs are funded solely by employer contributions. Solo 401(k) plans can be funded by a business owner in two ways: as the employee and the employer, subject to the maximum annual additions limit. Like a traditional 401(k) plan, maximum employee contributions in 2022 increases to $20,500 for the solo 401(k), plus a catch-up contribution of $6,500 if 50+. 

As previously mentioned, the employer component is subject to limitations based on earnings. Learn more about retirement planning for small business owners

SIMPLE IRA and SIMPLE 401(k) Contributions: Increase

Assuming the employee does not participate in another retirement plan, the maximum contribution to a SIMPLE IRA or SIMPLE 401(k) plan will increase $500 to $14,000 in 2022. The catch-up contribution for those over age 50 remains unchanged at $3,000.

However, an employer may either make matching contributions or nonelective contributions to the plan. If the employer makes nonelective contributions, the covered compensation limit will increase to $305,000 in 2022.

Traditional IRAs: Unchanged

Note: income limits on deductible contributions have changed.

The annual contribution limit for traditional IRAs will remain $6,000 in 2022. The additional catch-up contribution for those over age 50 will stay $1,000.

Just about any individual with earned income can contribute to a traditional IRA, however their additions may not be deductible. In 2022 the income phase-out bands that determine whether all (or a portion of) contributions are deductible will increase. 

The Deductible IRA Limits for 2022

Below are the limits for investors looking to make a tax-deductible IRA contribution in 2022. Note, even if your income exceeds the limits below, you can likely still make a non-deductible contribution up to $6,000, but be aware of the downsides.

If you/your spouse ARE covered by a retirement plan at work at any point during the year:

Tax Filing Status & Modified Adjusted Gross Income Limits

Deduction Single Married filing jointly
Full $68,000 or less $109,000 or less
Partial; deduction begins to phase out More than $68,000 and less than $78,000 More than $109,000 and less than $129,000
Non-deductible  Above $78,000 Above $129,000
 

If you/your spouse are NOT covered by a retirement plan at work during the year:

Tax Filing Status & Modified Adjusted Gross Income Limits

Deduction Single and married filing jointly (neither spouse covered) Married filing jointly – one spouse covered
Full Any $204,000 or less
Partial; deduction begins to phase out   More than $204,000 and less than $214,000
Non-deductible    Above $214,000

 

Roth IRAs: Unchanged

Note: income limits on regular contributions have increased, but not the maximum funding.

Like the traditional IRA, the contribution limits will stay the same in 2022, at $6,000 with a $1,000 catch-up contribution for investors 50 or older. The income phase-out limits will increase: the phase-out range for single filers in 2022 is between $129,000 – $144,000 and for married couples filing jointly $204,000 – $214,000.

Defined Benefit Pension Plans: Increase

The annual benefit limit will increase $15,000 to $245,000 in 2022.

Health Savings Accounts (HSAs): Increase

To qualify to use a health savings account, you must have a high deductible health plan (HDHP).

HDHPs must have a minimum annual deductible of $1,400 for individual plans and $2,800 for family plans in 2022, which is unchanged. The maximum annual out-of-pocket expenses cannot exceed $7,050 for individual plans and $14,100 for family plans, an increase of $50 and $100, respectively. 

In 2022, qualified participants may make pre-tax contributions to a health savings account up to $3,650 for individual plans and $7,300 for family plans, or an increase of $50 and $100, respectively. Individuals age 55 or older can make catch-up contributions of $1,000, which is unchanged. Learn more about HSAs.

Flexible Spending Accounts (FSAs): TBD

Employer-sponsored flexible spending accounts can have two components: a health FSA and/or a dependent care FSA. In 2021, annual contributions to a health FSA is $2,750 and the maximum carryover is $550. The dependent care FSA is currently $5,000 for single parents or married couples filing jointly. Learn more about FSAs.

Social Security Taxable Wage Base: Increase

FICA taxes, also called payroll tax: there will be another large increase to the Social Security taxable wage base, rising to $147,000 from $142,800. The taxable wage base has increased nearly $10,000 since 2020.

The Social Security tax rate remains unchanged at 6.2% for the employer and 6.2% for the employee. The Social Security (OASDI) tax is in addition to the 1.45% Medicare tax (HI) which does not have an earnings limit.

In addition, single individuals with income above $200,000 or $250,000 for married taxpayers will pay another .9% in Medicare taxes, which is unchanged.

Federal Estate and Gift Tax Exemption: TBD

Congress is proposing major changes to the estate tax code but it remains unclear whether anything will eventually become law, and in what form.

The estate and gift tax exemption is $11.7 million in 2021. For married couples, that’s a combined $23.4 million. The annual gift exclusion amount is currently $15,000 per person, per gift recipient. For example, a married couple could give a combined $30,000 to each child.

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