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401(k) Changes You Should Know About in 2022
Retirement

401(k) Changes You Should Know About in 2022 

401(k) Changes in 2022

The start of the year is a great time to review your finances and make sure you’re on track for long-term goals like retirement. If you’re thinking about adjusting your retirement contributions, then you’ll need to know about 401(k) changes for 2022. The IRS recently announced that the contribution limit is going up, which is great news if you max out your 401(k) every year. The income limits for both traditional and Roth IRAs are also being increased. Here’s everything you need to know about these changes so you can make your financial plans for the new year. 

Important 401(k) Changes in 2022

The maximum contribution for 401(k) plans is going up to $20,500 in 2022, which is a $1,000 increase. Although that doesn’t seem like a big jump, Fool pointed out that contributing an extra $1,000 per year could increase your retirement nest egg by as much as $282,224. So if you can afford to up your contribution to the new limit, it’s worth doing. 

Unfortunately catch-up contributions for workers 50 and older will stay the same in 2022. So if you’re behind on your retirement savings, you’ll only be able to contribute an additional $6,500 to your 401(k) on top of the regular $20,500 limit. 

SEP IRA and SIMPLE IRA Limits Have Also Increased

The IRS has also made changes to the SEP IRA contribution limit so independent contractors can grow their retirement savings. If you’re self-employed, you’ll be able to contribute as much as 25% of your net earnings to your SEP IRA in 2022, up to $61,000. The contribution limit last year was just $58,000, so this is a sizable increase that could make a big difference to your retirement nest egg. 

It’s also worth noting that SIMPLE IRA contribution limits increased by $500 in 2022. SIMPLE IRAs are retirement plans utilized by small businesses with less than 100 employees. If you have one, you can now contribute up to $14,000 per year, or $17,000 if you’re 50 or older. 

Changes to IRAs in 2022

Sadly the contribution limit for other types of IRAs (Roth and traditional) isn’t going up in 2022. However, the income limit is increasing, which is good news for high-earners. If you were ineligible before due to your income, you may be able to contribute this year thanks to these new higher limits. Here’s a breakdown of the changes so you can check to see if you qualify. 

Income Limits for Traditional IRAs

The income limit for a full contribution for single tax filers covered by workplace retirement plans is $68,000 in 2022, up from $66,000 in 2021. The phase-out limit also increased by $2,000 to $78,000. 

If you’re a married joint filer who’s covered by a workplace retirement plan, the eligibility limit for a full contribution is $109,000, up from $105,000. Additionally, the phase-out limit increased to $129,000, up from $125,000. 

If you’re a married joint filer who’s spouse is covered by a workplace retirement plan, your income limit is $204,000 for a full contribution. The phase-out limit also jumped to 208,000. 

Income Limits for Roth IRAs 

The income limit for a full contribution for single filers and head-of-households is increasing to $129,000, up from $125,000. The phase-out limit also jumped from $140,000 to $144,000. 

The full contribution eligibility limit for married joint filers is $204,000 in 2022, up from $198,000. Additionally, the phase-out limit is now $214,000. 

All of these changes and eligibility limits can be confusing. If you need a little help understanding these new rules or planning for your retirement, it may be a good idea to speak to a certified financial professional. 

What do you think of the new IRA and 401(k) changes in 2022? Are you going to increase your retirement contributions at all this year? Let us know in the comments section below! 

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