The Internal Revenue Service (IRS) has issued Notice 2021-61 that provides technical guidance regarding all the cost‑of‑living adjustments affecting dollar limitations for pension plans and other retirement-related items for the 2022 plan year.
Contribution Increases
Employees who participate in a 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan (for federal employees) have been increased from $19,500 to $20,500 for 2022. The limit on annual contributions to an individual retirement account (IRA) continues to be unchanged at $6,000. Furthermore, the IRA catch-up contribution limit for individuals that are age 50 and older and is not subject to an annual cost-of-living adjustment and will remain at a cap of $1,000.
The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $6,500. As a result, in 2022, plan participants that are 50+ years old can contribute up to $27,000. For SIMPLE plans, the catch-up contribution limit for employees that are 50+ years old stays at $3,000.
Deductions Allowed
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If neither the taxpayer nor their spouse is covered by a retirement plan at work, their full contribution to a traditional IRA is deductible. If the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced or phased out until it is eliminated. The amount of the deduction depends on the taxpayer’s filing status and their income.
The Phase-out ranges for 2022 are as follows:
- For single taxpayers covered by a workplace retirement plan, the phase-out range is increased to $68,000 to $78,000, up from $66,000 to $76,000.
- For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is 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 is increased to $204,000 to $214,000, up from $198,000 to $208,000.
- For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
When it comes to the income limit for the Saver’s Credit (also referred to as the Retirement Savings Contributions Credit) which permits low- and moderate-income workers to take a tax credit for making eligible contributions to an IRA or employer-sponsored retirement plan has increased from $66,000 in 2021 to $68,000 for 2022, for married couples filing jointly. Employees claiming head of household will see an increase to $51,000, up from $49,500 for 2022. Finally, there will be an increase to $49,500, up from $34,000 for individuals and up from $33,000 for married individuals filing separately.
