The IRS recently announced that next year taxpayers can put an extra $1,000 into their 401(k) plans, an extra $1,000 in SIMPLE IRA Plans and an extra $3,000 in SEP IRAs. Limits on contributions to traditional and Roth IRAs remain unchanged at $6,000 per year. The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan are increased to $20,500. To meet the increased contribution limit you need to set aside an extra $83.33 a month beginning in January 2022.
2022 Limits Summarized
401(k) Employee: $20,500
401(k) Employer Max: $40,500
401(k) Catch Up Employee: $6,500
Roth / Traditional IRA: $6,000
Roth / Traditional IRA Catch Up: $1,000
SIMPLE IRA Limit: $14,000
SIMPLE IRA Catch-Up: $3,000
SEP IRA Limit: $61,000
Why Meet the Higher Limit?
One reason to meet the higher limit is lowering your taxable income. 401(k) contributions come directly from your salary and even better come from pre-tax dollars, lowering your taxable income. A second reason is growing more money tax-deferred, the extra $1,000 put towards your 401(k) will grow tax-deferred. If you took that $1,000 and put it into other investment options you would owe taxes on those gains. One of the best parts is the 401(k) contributions come directly from your paycheck meaning you wouldn’t even need to think about it!
Don't Have a 401(k)?
Some jobs don’t offer a 401(k) if that is the case there are other options. One option is making strong and consistent contributions to an IRA. As previously mentioned, the IRA contribution limit has not changed. If you don’t have an IRA opened consider meeting with a Whitaker-Myers Wealth Managers SmartVestor Pro to get started.
CHANGES TO RETIREMENT PLAN CONTRIBUTION LIMITS IN 2022
January 1, 2022
John-Mark Young
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