As you look ahead to retirement, one of the most important things is making the maximum contributions to your various retirement plans. In 2022, cost-of-living adjustments have resulted in many popular plans now allowing for increased contributions. To make sure you contribute as much as possible toward your retirement, here are some of the 2022 retirement contribution limits that may apply to your situation.
SIMPLE Retirement Accounts
For those of you who are self-employed, a SIMPLE retirement account can make life much easier once you stop working and start relaxing. Like many other retirement accounts, the contribution limit for SIMPLE accounts has increased. In 2022, you are now allowed to contribute as much as $14,000 to your account, an increase of $500 from last year’s $13,500. However, if you are age 50 or older, the catch-up contribution with the SIMPLE account remains unchanged at $3,000. Since retirement planning for self-employed individuals is almost always more complex, seek expert guidance from a CPA you know and trust.
401(k), 403(b), 457, Thrift Savings Plans
Like millions of employees today, it is likely you participate in your company’s 401(k), 403(b), 457, or a Thrift Savings Plan. If so, get ready to contribute a bit more to these plans in 2022. For all of these plans, the maximum amount you are allowed to contribute has increased by $1,000, going from 2021’s $19,500 to $20,500 in 2022. Unfortunately, just as it was with the SIMPLE retirement account, the amount of money that can be allocated for a catch-up contribution for those past age 50 has not increased. For 2022, this amount remains at $6,500.
Perhaps the most popular of all types of retirement accounts, the traditional IRA is also one of the most complex when it comes to contribution amounts and the changes usually associated with them each year.
In 2022, the annual contribution limit on your traditional IRA will remain at $6,000. Like other plans, the catch-up contribution limit has also not changed with the traditional IRA. For 2022, this means the limit for you and others who are 50 or older will stay at $1,000, since it is not subject to the cost-of-living adjustment.
Phase-Out Ranges in 2022 for Traditional IRA
Should you meet certain conditions, you may be able to deduct the contributions you make to your traditional IRA. To find out if you can, it’s always best to consult with your CPA.
However, if you or your spouse were covered by a retirement plan through an employer, your deduction may be either reduced or phased out until it is eliminated. Of course, this will depend on such factors as your income and filing status. Should neither you nor your spouse be covered by a retirement plan at your job, your deduction’s phase-out amounts do not apply.
As for phase-out ranges for 2022, single taxpayers who are covered by an employer’s retirement plan have a phase-out range of $68,000 and $78,000, which is a $2,000 increase from 2021.
For married couples filing jointly and who have an employer retirement plan that covers the spouse who makes the IRA contribution, the phase-out range increases $4,000 from 2021, with the 2022 range being $109,000 and $129,000.
If you are an IRA contributor who is not covered by an employer retirement plan but are married to someone who is covered, the deduction is phased out should your income as a couple be between $204,000-$214,000, which is a $6,000 jump from 2021.
Finally, if you are married, choose to file a separate return, and are covered by an employer retirement plan, your phase-out range will not be subject to an annual cost-of-living adjustment. Thus, this means it will remain at a range of $0-$10,000.
Like the traditional IRA, the Roth IRA is a very popular retirement plan for many people. Just as with the standard IRA, the Roth IRA has also seen some changes in its contribution limits for 2022.
For singles and heads of household, the phase-out range for you if you make a contribution to your Roth IRA will range from $129,000-$144,000, a $4,000 increase from last year. Married couples filing jointly have an income phase-out range between $204,000-$214,000, a $6,000 increase from one year ago. Finally, like the traditional IRA, a married person who files a separate return and contributes to a Roth IRA will see no change to the yearly cost-of-living adjustment, with the range remaining at $0-$10,000.
Also known as the Retirement Savings Contributions Credit, the Saver’s Credit is aimed primarily at low to middle-income workers. In 2022, the income level for this credit has increased slightly for everyone across the board. Married couples filing jointly will see an income limit increase from $66,000 up to $68,000. Heads of household will go from $49,500 up to $51,000, while single individuals and those who are married but file separately will experience a 2022 increase from $33,000 up to $34,000.
How You Can Benefit from Retirement Contribution Limit Changes
Since you now know that you can make higher contributions to most of your standard retirement plans in 2022, there are numerous ways these changes may benefit you in the years ahead.
To begin with, contributing more to your retirement plans may allow you to retire sooner than you anticipated. Along with this, you can maximize the employer match that often accompanies such plans as a 401(k), which can help your retirement savings grow at a faster pace. Finally, remember that any contributions made to your 401(k) are done so on a pre-tax basis, meaning you won’t need to pay income taxes on that money this year.
With so many changes taking place regarding retirement contribution limits in 2022, now is the time to schedule a consultation with your CPA. No matter what type of retirement plans you have, getting advice you trust will be crucial to helping you achieve your retirement goals.