Contributed by: Kelsey Arvai, MBA
Contributed by: Robert Ingram, CFP®
The IRS has released its updated figures for retirement account contribution and income eligibility limits. Here are the adjustments for 2022:
Employer retirement plan contribution limits including 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan:
Employee elective deferral contribution limit is increased to $20,500 (up from $19,500).
IRA catch-up contribution limit for individuals over 50 remains unchanged at $1,000.
The total amount that can be contributed to a defined contribution plan including all contribution types (e.g., employee deferrals, employer matching, and profit-sharing) is $61,000 or $67,500 if over the age of 50 (increased from $58,000 or $64,500 for age 50+ in 2021).
Traditional, Roth, SIMPLE, and SEP IRA contribution limits:
Individuals can contribute $14,000 to their SIMPLE retirement accounts (up from $13,500).
SIMPLE IRA catch-up contributions for individuals over 50 is $3,000.
Limit on annual IRA contributions remains unchanged at $6,000.
IRA catch-up contribution limit for individuals over 50 remains unchanged at $1,000.
The income ranges for determining eligibility to make deductible contributions to Traditional IRAs and contributions to Roth IRAs increased for 2022.
Traditional IRA deductibility income limits:
For single taxpayers covered by a workplace retirement plan, the phase-out range increased to $68,000 to $78,000 (up from $66,000 to $76,000).
Married filing jointly taxpayers:
If the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range increased to $109,000 to $129,000 (up from $105,000 to $125,000).
For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the phase-out range increased to $204,000 to $214,000 (up from $198,000 to $208,000).
For married filing separately taxpayers who are covered by a workplace retirement plan, the phase-out range remains the same, $0 to $10,000.
Roth IRA contribution income limits:
For single taxpayers and Head of Household, the income phase-out range is increased to $129,000 to $144,000 (up from $125,000 to $140,000).
For married filing jointly, the income phase-out range is increased to $204,000 to $214,000 (up from $198,000 to $208,000).
For married filing separately, the income phase-out range remains unchanged at $0 to $10,000.
One strategy that has been used to accumulate dollars in a Roth IRA, even if your income level prohibits you from making regular contributions, is to accumulate non-deductible Traditional IRA contributions and then use Roth IRA conversions to move funds to the Roth IRA. This is known as the so-called “backdoor Roth IRA.” For individuals with an employer retirement savings plan, like a 401k or 403(b), that allows after-tax contributions in addition to the typical pre-tax or Roth contributions, there may be an opportunity to convert those after-tax contributions to a Roth IRA as well.
We continue to follow the proposed Build Back Better legislation going through Congress, and it’s probably not a big surprise that this continues, and will continue, to evolve. It still may be too early to tell, but it’s possible that these types of “back-door Roth IRA” strategies will go away starting in 2022.
These strategies would no longer be allowed under the proposed tax law changes in the Build Back Better plan. This year may be your last chance to use these strategies, so keep them on your radar. You can check out our blogs on “Back-Door Roth IRA” HERE and on the “Build Back Better plan” HERE.
Health Savings Account (HSA) contribution limits for 2022:
For those with an individual high deductible health plan, HSA annual deductible contribution limit is $3,650.
For those with a family HDHP, HSA annual deductible contribution limit is $7,300.
With increased retirement savings opportunities in 2022, we encourage you to keep these figures in mind when reviewing and updating your financial plan. If you have any questions, please feel free to reach out; we love to help! We hope you have a happy and healthy holiday season!
Kelsey Arvai, MBA, is a Client Service Associate at Center for Financial Planning, Inc.® She facilitates back office functions for clients.
Robert Ingram, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® With more than 15 years of industry experience, he is a trusted source for local media outlets and frequent contributor to The Center’s “Money Centered” blog.
Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.