401(k) Update: IRS announces COLA Increases & More For Retirement Plans
The IRS announced Thursday, Nov. 4 that some big changes coming to retirement plans for 2022. Considering that the November CPI report showed that prices surged by 6.2% between last October and this October, the biggest one-year jump since 1990, as previously reported by GOBankingRates, cost-of-living adjustments (COLA) may also affect pension plans and other retirement-related savings plans next year. These limits are adjusted every year to account for COLA.
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Here’s how the 401(k) plan limits will change in 2022.
The 2022 401(k) Contribution Limit
Retirement savers can start putting an extra $1,000 into their 401(k) retirement plans next year. This makes the contribution limit for employees who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan approximately $20,500 for 2022. This higher contribution limit means that savers can contribute about $83 more per month to their 401(k) plan.
The 2022 401(k) Annual Compensation Limit
The annual compensation is used to determine a saver’s allocation of employer contributions, including deferrals or voluntary after-tax contributions, which can’t exceed the annual compensation limit. The 401(k) annual compensation limit is also getting a $15,000 boost to $305,000 but can only be used up to this amount when providing a 401(k) match.
The 2022 401(k) Limit for Employer Contributions
Employers can update 401(k) contributions, matching or unmatching, on behalf of their employer regardless of whether the employer has already maxed out their contributions. The limit for employer and employee contributions will be $61,000. For those 50 and older, the contribution limit is $67,500, including catch-up contributions.
The 2022 401(k) Catch-Up Contribution Limit
The catch-up deposit limit is still $6,500 for those 50 and older. Older workers can also defer paying income taxes on $27,000 in a 401(k) plan for next year.
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The 2022 Income Limit for the Saver’s Credit
The Saver’s Credit gives a tax break to low- and moderate-income retirement savers. Depending on your adjusted gross income and tax filing status, savers can claim between 10% and 50% of 401(k) contributions for the first $2,000 for individuals and $4,000 for couples. The income limits for the saver’s credit will increase to $34,000 for individuals, $51,000 for head of household and $68,000 for couples.
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This article originally appeared on GOBankingRates.com: 401(k) Update: IRS announces COLA Increases & More For Retirement Plans