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2022 Retirement Plan Contribution Limits

5 October 2022

Our last post discussed several factors to bear in mind to ensure a happy retirement.

This week, since it is by no means too early for tax planning, we talk about the 2022 limits on contributions to retirement plans.

  • IRAs – Traditional and Roth: the 2022 annual contribution limits remain unchanged at $6,000 for those under 50, while those age 50+ can contribute an additional “catch-up” of $1,000 per year, for a total contribution limit of $7,000. Note that this limit applies to all IRAs held by a single taxpayer, not each individual IRA – i.e., if you want to contribute to two or more of your IRAs in one year, the total amount contributed to all IRAs cannot be more than the limit for your age (either $6,000 or $7,000).
  • SEP IRAs – the contribution limit for 2022 (made by the employer on behalf of an employee or employees) is the lesser of 1) 25% of the employee’s compensation, or 2) $61,000 per employee (an increase from the 2021 limit of $58,000), with an adjustment for 50% of the self-employment tax. No catch-up contributions are permitted.
  • Employer-sponsored retirement plans – the 2022 contribution limit for 401(k), 403(b), and most 457 plans is increased from $19,500 to $20,500 for employees under 50. For those over 50, a catch-up contribution up to $6,500 annually is permitted – assuming your employer-sponsored retirement plan permits catch-up contributions.

We would recommend contributing the full amount available to you into whatever retirement account(s) you own.

Further, we recommend checking into all retirement options available through your employer – public schools, colleges, universities, churches, hospitals and other tax-exempt organizations may offer more than one option, including 401(k), 403(b), and/or 457 plans, and may also allow you to participate in and contribute to more than one employer-sponsored plan – e.g., offering you both a 401(k) and a 403(b) plan.

If you have both a 401(k) and 403(b) plan account, be aware that the total annual contribution to employer-sponsored retirement plans is $20,500 for 2022 – or $27,000 if you are over 50. However, it may be useful to have more than one employer-sponsored plan account, especially if one or more of the plans does not allow catch-up contributions. In such a case, you can contribute the amount of your catch-up to the second retirement plan account – the IRS permits you to treat this additional contribution as a catch-up for their purposes, even if your plan does not.

However, if your employer offers you both a 401(k) plan and a 457 plan, a deferred compensation plan, you can contribute $20,500 to each plan in 2022, not counting catch-up contributions. If you have this option available, you can contribute up to $54,000 tax-deferred for 2022, if you are over 50 – $20,500 plus $6,500 to each plan account.

We invite you to consult with our CPAs/financial planners for advice on how to maximize your retirement assets, reduce your tax liabilities, and plan for the retirement you want to look forward to.

Please click here to email us directly – let us know how we can help.

Until next time –

Peace,

Eric

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