There is some good news for your retirement planning. If you have an employer-sponsored 401(k) retirement plan, or any of a number of similar plans, you’ll be able to increase your annual contribution this year by $1000, as part of the federal government’s scheduled inflation adjustment. The limit increase means work-based retirement plans can reach $20,500 in 2022.
When it comes to individual retirement accounts, however, this year’s contribution limit remains unchanged at $6,000 or $7,000, if you’re age 50 or older. The so-called catch-up contributions are staying the same, as well, at – $6,500 –for 401(k)s and employer-based retirement plans.
There are some other changes the IRS has put into play in 2022 for those saving for retirement. While it’s always advised that you consult a tax or financial planning professional before you make any major revisions, the Internal Revenue Service said you may be allowed to deduct contributions to a traditional IRA, if you have access to a work retirement plan. Partial deductions are available to:
1. Single tax filers, earning between $68,000 and $78,000
2. Married couples filing jointly, earning between $109,000 to $129,000
3. Those who don’t have a workplace retirement plan, but whose spouse does, and who jointly earn $204,000 to $214,000.
Although not everyone is eligible to contribute to Roth IRAs, those who are will see an increase in those limits, also. For single filers and heads of households with earnings between $129,000 and $144,000, the contribution is increased $4,000 from last year. For a married couple filing jointly, the contribution cap increased to $6,000 for those earning between $204,000 and $214,000.
Please note, if your income is less than the lowest end of these levels, you can make a full Roth IRA contribution. If your earnings exceed the higher end of the income threshold, you cannot make any contributions to a Roth.
While many may not know about it, there is a Saver’s Credit program for lower income workers. This often overlooked plan allows married couples filing jointly who earn $68,000 to get a tax credit for retirement savings up to $2,000. For a head of household, it’s $1,500 and for a single person or a married couple filing separately earning $34,000, it’s a $1,000 credit.
Contact one of our tax advisors to review and discuss your 401K contribution options. We are 401K experts and we are here to help.