IRS Announces Retirement Plan and Other Benefit Limitations for 2022

The IRS recently announced contribution and benefit limits for qualified retirement plans effective January 1, 2022. Thanks to a higher-than-normal annual inflation rate of 5.4%, the IRS is allowing taxpayers to contribute up to $20,500 to a 401(k) or similar workplace retirement plan.This is a $1,000 boost from the $19,500 contribution limit for this year. The limit usually increases in $500 increments; however, higher inflation is making it jump up two steps in one year. The catch-up contribution limits – for employees turning 50 and older any time in 2022 – will remain at $6,500, bringing that limit to $27,000.

The contribution amount to an individual retirement account (IRA) remains unchanged at $6,000. The catch-up limit for IRAs will also stay at $1,000, meaning those age 50 and older can put away $7,000 next year.

Additionally, more Americans may now qualify for Roth IRA contributions in 2022, with the income phase outs rising to $129,000 to $144,000 for single and head of household filers (up from $125,000 to $140,000) and $204,000 to $214,000 for married couples filing jointly (up from $198,000 to $208,000).

As was highlighted in last month’s Perspectives, the Social Security Administration (SSA) also announced the biggest raise for retirees since 1982 at 5.9%, with a normal increase to the taxable wage base for workers. The Social Security Wage Base, which is the maximum amount of earnings subject to Social Security tax, will rise 2.9% to $147,000 up from $142,800 this year. That means the maximum Social Security tax per worker making at least $147,000 will be $18,228 – or a maximum $9,114 withheld from a highly paid employee’s 2022 paycheck. Workers and their employers each pay 6.2% of the Social Security tax for a total of 12.4% of Social Security taxes paid annually; the self-employed pay both sides of the tax.

Following is a table highlighting some common retirement plan and other benefit limitations.

The Saver’s Tax Credit for low to moderate-income workers will reflect modest adjustments as well. The Saver’s Credit is a tax break that’s available to many people with modest incomes, offering a way for savers to make their money work harder for them. The credit is between 10-50% of the individual’s eligible contribution up to $2,000. The annual income limit to receive the credit for 2022 is $34,000 for single filers; $51,000 for head of household; and $68,000 for married couples filing jointly.

Should you have any questions regarding the various limitations that apply to retirement plans, including some that are not included in the above table, please contact our retirement plan services team.