Workers will be able to funnel more money into their 401(k) plans next year thanks to contribution increases that were doled out by the Internal Revenue Service late last week.
Employees will be able to increase their qualified tax-deferred contribution to their 401(k) plan to $20,500 in 2022, up from $19,500. Workers 50 and older also get the $1,000 bump up, bringing their total maximum contribution to $27,000, which includes the alloted catch-up deposit of $6,500 for older workers.
The new amounts also apply to 403(b) and most 457 and Thrift Savings Plan contributions, the IRS said.
Meanwhile, the agency did not increase the amounts workers can contribute to individual retirement accounts, which remain unchanged at $6,000, despite the erosive effect of persistent inflation on savings these days.
Instead, the IRS decided to allow current IRA maximum contribution limits to stand. So, in 2022, workers will be able to max out at $6,000 a year if they’re under 50 and $7,000 a year if they’re 50 and older, thanks to the existing $1,000 catch-up provision.
The number of Americans who will quality to make Roth IRA contributions increased substantially in 2022, with the IRS hiking income phaseouts from $129,000 to $144,000 for single savers and from $204,000 to $214,000 for couples filing together.
There is also a higher income phaseout to qualify for deducting IRA contributions.
The changes come as only 8.5% of workers maxed out company retirement plans in 2018, according to the Congressional Research Service.
An investor and their spouse may be able to write off their total IRA contributions if both spouses aren’t participating in an employer’s retirement plan and have adjusted gross income of $66,000. A partial deduction is allowed if they earn AGI of less than $76,000.
However, the rules change if either partner has coverage and participates in the plan, including deposits from the employee or company. Participation in a plan may include not only employee contributions, but also company matches and profit sharing.