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US Hikes Thresholds For Tax-Privileged Retirement Arrangements

Tuesday, November 9, 2021

The US Internal Revenue Service (IRS) has announced that the amount individuals can contribute to their 401(k) plans in 2022 has increased to USD20,500 (up from USD19,500 for 2021 and 2020).

The IRS has also issued technical guidance regarding all of the cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2022 in Notice 2021-61, which was published on November 4.

The increased USD20,500 threshold applies to employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan.

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs, and to claim the Saver's Credit all increased for 2022.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or the taxpayer's spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor the spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.)

The following phase-out ranges apply for 2022:

  • For single taxpayers covered by a workplace retirement plan, the phase-out range is increased to USD68,000 to USD78,000 (up from USD66,000 to USD76,000);
  • 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 USD109,000 to USD129,000 (up from USD105,000 to USD125,000);
  • 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 USD204,000 to USD214,000 (up from USD198,000 to USD208,000);
  • 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 USD0 to USD10,000; and
  • The income phase-out range for taxpayers making contributions to a Roth IRA is increased to USD129,000 to USD144,000 for singles and heads of household (up from USD125,000 to USD140,000);
  • For Roth IRAs, for married couples filing jointly, the income phase-out range is increased to USD204,000 to USD214,000 (up from USD198,000 to USD208,000); and
  • The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains USD0 to USD10,000.

The IRS has further announced that the income limit for the Saver's Credit, also known as the Retirement Savings Contributions Credit, for low- and moderate-income workers is USD68,000 for married couples filing jointly (up from USD66,000); USD51,000 for heads of household (up from USD49,500); and USD34,000 for singles and married individuals filing separately (up from USD33,000).

The amount individuals can contribute to their SIMPLE retirement accounts is increased to USD14,000 (up from USD13,500).

For 2022, the limit on annual contributions to an IRA remains unchanged at USD6,000. The IRA catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains USD1,000.

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 USD6,500. Therefore, participants in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan who are 50 and older can contribute up to USD27,000, starting in 2022. The catch-up contribution limit for employees aged 50 and over who participate in SIMPLE plans remains unchanged at USD3,000.