The IRS announced last week that workers will be able to set aside an extra $1,000 in their 401(k) accounts in 2022. The change was made as part of cost-of-living adjustments to retirement accounts; although, if you have an individual retirement account (IRA), you’re out of luck—contributions will remain unchanged at $6,000.
Your 401(k) contribution maximums will (mostly) increase
As part of the IRS’ annual inflation adjustments, workers with 401(k), 403(b), 457 or Thrift Savings plans can contribute up to $20,500 into their accounts in 2022—a $1,000 increase compared to 2021. However, employees over age 50 don’t get a break, as the extra “catch-up” contribution limit of $6,500 will remain unchanged for 2022. There’s also a $3,000 increase to the overall contribution limit for these accounts in 2022, for a maximum total of $61,000 (excluding the catch-up contribution).
IRAs will also have changes in 2022
Unfortunately, there will be no increase to the maximum contributions for IRAs. The 2022 limit will remain $6,000 (or $7,000 for those 50 or older). Catch-up contributions for people over 50 won’t get any cost-of-living adjustment either—the maximum will remain $1,000.
That said, it will be easier to qualify for full Roth IRA contributions. Income phaseouts have increased to a new range of $129,000 – $144,000 for single savers and $204,000 – $214,000 for joint filers. (Anyone with annual income below these ranges can make a full annual contribution to a Roth IRA). Additionally, workers with a SIMPLE IRA account account will see a $500 increase to their contribution limit, from $13,500 to $14,000.
What should you do now?
Likely very little, unless you’re among the few who max out your contributions on your retirement plan (a 2018 report found that only 8.5% of people actually do this). If you do plan to max out your contributions in 2022, you might want to revise your projected retirement savings based on these new limits.
We can expect more changes to come, too, as the IRS has yet to announce other tax-related adjustments for 2022, such as updated income tax brackets and how much you’ll be able to deduct as part of the standard deduction in your tax return. With high inflation, these are expected to jump by about 3%, per the Wall Street Journal.