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. Maximum total funding is $34,000 (employee + employer).

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): Increase

Employer-sponsored flexible spending accounts can have two components: a health FSA and/or a dependent care FSA. In 2022, annual contributions to a health FSA is $2,850 and the maximum carryover is $570. The dependent care FSA will stay at $5,000 for single parents or married couples filing jointly ($2,500 for MFS). 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: Increase

The estate and gift tax exemption is $11.7 million per person in 2021. In 2022, this increases to $12,060,000 per person. For married couples, that’s a combined $24,120,000.

In 2022, the annual gift exclusion amount increases $1,000 to $16,000 per person, per gift recipient, per year. So for example, a married couple splitting gifts could give a combined $32,000 to one child using the annual exclusion amount in 2022.

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