As we enter a new year it is important to note some of the changes you may see in terms of Individual Retirement Account (IRA) and 401(k) contributions. Inflation is the primary contributing factor to these changes. During inflation, prices and the value of the dollar fluctuate. Contribution limits refer to the amount of money that you can put towards your retirement within a year. 401 (k) contribution limits have been raised. However, IRA contributions are remaining more stagnant in 2022. It is always advisable to contribute the maximum amount to your IRA retirement account. It is also important to note that compounding interest is essential. Compounding interest accrues over the years and adds to the amount you have in your retirement fund.
Employees who are 50 years of age or older will benefit from the 401k 2022 limit because their catch up is $6,500. This means that they can add money to their retirement fund as they surpass the retirement contribution limit that employees 50 and under have. Each type of worker will be affected differently in 2022. For example, small business owners and self employed individuals 401(k) savings contribution limit increases from $58,000 to 61,000. Employees whose companies grant aftertax 401(k) contributions will receive a higher limit than in 2021. For people with Simple Retirement Accounts they will see a $500 increase in 2022. Individuals on a Defined Benefit Plan will benefit from a slight increase in retirement contribution limits.
Although IRA’s are not projected to change in 2022 there will be changes to tax deductions and income based phaseouts. These phaseouts affect taxpayers eligibility to receive tax credit. People who have retirement plans with their employer and file taxes as the head of the household or single will have a deduction if their income bracket is $68,000-$78,000. Married couples filing jointly with one spouse who has a workplace retirement account and makes an IRA contribution, will have a deduction phase out at the adjusted gross income of $109,000-$129,000. For married couples with no workplace retirement plan and filing jointly the phaseout interval is $204,000-$214,000. Taxpayers with Roth IRA accounts will also benefit from inflation in 2022. For couples married and filing jointly their phaseout income level is now $204,000-$214,000. For single or head of the household their phaseout range is $129,000-$144,000.
Saver’s Credit is a retirement plan for low and moderate income workers. With this tax credit the income limit for married couples filing jointly is $68,000. For the heads of households the limit is $51,000. For individuals filing taxes as single the income limit is $34,000. Qualified Longevity Annuity Contracts limit is now $145,000, a $10,000 increase from 2021.