The Internal Revenue Service said Thursday that the amount that individuals can contribute to their 401(k) plans is increasing to $20,500 in 2022, up from $19,500 for 2021 and 2020, as part of its annual inflation adjustments.
The IRS also released technical guidance Thursday about various other cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2022 in Notice 2021-61 on IRS.gov.
The inflation adjustments come as the country is experiencing an inflation rate of 5.4%, the highest in 13 years. The price hikes are affecting consumer goods as well as business supplies, partly as a result of supply chain shortages and labor shortages, as well as consumer demand rebounding from the low levels seen last year with the pandemic, which prompted many companies to cut back on their supplies.
Thanks to the inflation adjustments, which the IRS releases on an annual basis, the contribution limit for employees who participate in 401(k), 403(b), most 457 plans and the U.S. government’s Thrift Savings Plan is going up to $20,500 in 2022, an increase from $19,500 this year.
The income ranges for determining eligibility to make deductible contributions to traditional individual retirement arrangements, to contribute to Roth IRAs, and to claim the Saver’s Credit all went up as well for 2022.
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Taxpayers are able to deduct their contributions to a traditional IRA if they meet certain conditions. If during the course of the year either a taxpayer or their spouse was covered by a retirement plan at work, the deduction could be reduced, or phased out, until it’s eliminated, depending on filing status and income. (If neither the taxpayer nor the spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.)
Here are the phase-out ranges for 2022:
- For single taxpayers covered by a workplace retirement plan, the range is increasing to $68,000 to $78,000, up from $66,000 to $76,000.
- For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the range is increasing to $109,000 to $129,000, rising from $105,000 to $125,000.
- For an IRA contributor who isn’t covered by a workplace retirement plan and is married to someone else who is covered, the range is rising to $204,000 to $214,000, up from $198,000 to $208,000.
- For a married individual filing a separate return who’s covered by a workplace retirement plan, the range isn’t subject to an annual cost-of-living adjustment and stays at $0 to $10,000.
The income phase-out range for Roth IRA contributions are:
- $129,000 to $144,000 for singles and heads of household, up from $125,000 to $140,000;
- For married couples filing jointly, the income phase-out range is increasing to $204,000 to $214,000, up from $198,000 to $208,000.
- A married individual filing a separate return isn’t subject to an annual cost-of-living adjustment and the range remains $0 to $10,000.
The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $68,000 for married couples filing jointly, up from $66,000; $51,000 for heads of household, up from $49,500; and $34,000 for singles and married individuals filing separately, up from $33,000.
The amount individuals can contribute to their SIMPLE retirement accounts is increased to $14,000, up from $13,500.
Employee contribution limits that aren’t changing
The limit on annual contributions to an IRA is staying unchanged at $6,000. The IRA catch-up contribution limit for individuals 50 years and older isn’t subject to an annual cost-of-living adjustment and remains $1,000.
The catch-up contribution limit for employees ages 50 and over who participate in 401(k), 403(b), most 457 plans and the U.S. government’s Thrift Savings Plan stays unchanged at $6,500. That means participants in those plans who are 50 and older can contribute up to $27,000, beginning in 2022. The catch-up contribution limit for employees 50 years and over who participate in SIMPLE plans is staying unchanged at $3,000.
For more details, see Notice 2021-61 on IRS.gov.