401(k) Contributions
Employee 401(k) contribution maximums for 2022 will increase to $20,500—a $1,000 increase from the $19,500 cap for 2021 and 2020—the IRS announced on Nov. 4. Plan participants age 50 or older next year can contribute an additional $6,500, unchanged from 2021.
The limit on total employer-plus-employee contributions to defined contribution plans will increase to $61,000 in 2022, up by $3,000 from $58,000 in 2021.
While most contribution and income limits will go up in 2022, some limits will stay the same.
| Defined Contribution Plan Limits | 2022 | 2021 | Change |
| Maximum employee elective deferral (age 49 or younger)* | $20,500 | $19,500 | +$3,000 |
| Employee catch-up contribution (age 50 or older)** | $6,500 | $6,500 | unchanged |
| Maximum employee elective deferral plus catch-up contribution (age 50 or older) | $27,000 | $26,000 | +$1,000 |
| Defined contribution maximum limit, employee + employer (age 49 or younger)*** | $61,000 | $58,000 | +$3,000 |
| Defined contribution maximum limit (age 50 or older); maximum contribution all sources + catch-up | $67,500 | $64,500 | +$3,000 |
| Employee compensation limit for calculating contributions | $305,000 | $290,000 | +15,000 |
| Key employees’ compensation threshold for top-heavy plan testing | $200,000 | $185,000 | +15,000 |
| Highly compensated employee (HCE) threshold for nondiscrimination testing | $135,000 | $130,000 | +$5,000 |
*The $19,500 elective deferral limit is also known as the 402(g) limit, after the relevant tax code section. Participants’ annual contributions may not exceed 100 percent of their compensation.
**The $6,500 catch-up contribution limit for participants age 50 or older applies from the start of the year to those turning 50 at any time during the year.
***Total contributions from all sources may not exceed 100 percent of a participant’s compensation.
Source: IRS Notice 2021-61.
Defined Benefit Plan Limits
Sponsors of defined benefit pension plans should note that the IRS announced the following COLAs under tax code Section 415, also taking effect on Jan. 1:
- Annual benefit limit. The maximum annual benefit that may be provided through a defined benefit plan is increased to $245,000 from $230,000.
- Separation from service. For a participant who separated from service before Jan. 1, 2022, the annual benefit limit for defined benefit plans is computed by multiplying the participant’s compensation limit, as adjusted through 2021, by 1.0534. This is an increase from the previous year, when the participant’s compensation limit, as adjusted through 2020, was multiplied by 1.0122.
Separately, the federal Pension Benefit Guaranty Corp., which insures private-sector defined benefit pension plans, posted 2022 premium rates for single-employer and multiemployer pension plans.
Other Employer Plans
IRS Notice 2021-61 also provided adjusted limits and thresholds for other workplace retirement plans:
- For SIMPLE (savings incentive match plan for employees of small employers) retirement accounts, the maximum contribution limit is increased to $14,000 from $13,500. The SIMPLE plan catch-up contribution limit remains $3,000.
- For simplified employee pensions (SEPs), the minimum compensation threshold remains unchanged at $650. The SEP maximum compensation limit rises to $305,000 from $290,000.
IRAs
The limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit to an IRA for individuals age 50 and over remains $1,000.
Although personal IRAs are not employer plans, the amount that account holders can contribute annually is affected by whether they have a workplace retirement plan and how much they earn.
The income ranges for determining eligibility to make deductible contributions to traditional IRAs, and eligibility to contribute to Roth IRAs, increased for 2022 as shown below.
TRADITIONAL IRA DEDUCTION PHASE OUT:
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either they or their spouse was covered by a retirement plan at work, the deduction may be phased out until it is eliminated, depending on filing status and adjusted gross income (AGI):
- For single people covered by a workplace retirement plan, the IRA phase-out range is $68,000 to $78,000, up from $66,000 to $76,000.
- For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $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 deduction is phased out if the couple’s income is between $204,000 and $214,000, up from $198,000 and $208,000.
- For married individuals filing a separate return who are covered by a workplace retirement plan, if they lived with their spouse at any time during the year, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
ROTH IRA INCOME PHASE OUT:
The 2022 AGI phase-out range for taxpayers contributing to a Roth IRA are:
- For singles and heads of household, the income phase-out range is $129,000 to $144,000, up from $125,000 to $140,000.
- For married couples filing jointly, the income phase-out range is $204,000 to $214,000, up from $198,000 to $208,000.
- For married individuals filing a separate return, if they lived with their spouse at any time during the year, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
Article Provided by SHRM.