New in 2022 Retirement Saver News
Saving for retirement is high on the list of many small business owners, and rightly so. There are several choices for retirement account types with different taxation and investment options. The tax laws and deductibility of contributions and withdrawals are changing in 2022 for some retirement accounts. Here are the detailsi:
401(k) Account Changes for 2022
Contribution limits are rising in 2022. Worker contributions are rising from $19,500 to $20,500. Catchup contributions for those over 50 will remain the same at $6,500. This $1,000 increase may not seem like much, but here are the approximate values of that amount for a 30-year old who invests it each year until the age of 65:
- At 4% average yield = $73,656
- At 6% average yield = $111,442
- At 8% average yield = 172,332
Those numbers are for the tax free growth in the account. They do not include the tax savings for the contributions.
Traditional IRA Changes for 2022
The contribution limits for the traditional IRA have not changed for 2022. However, the income limits for making deductible contributions to the traditional IRA are increasing:
- For single taxpayers covered by a workplace retirement plan, there is an increase in the eligibility for a full contribution. The eligibility limit for a full contribution is rising from $66.000 to $68,000 for 2022. There is also an increase in the phase-out limit. It is increasing from $76,000 to $78,000.
- If a filer covered by a workplace retirement plan is filing jointly with a spouse, the income limit for full eligibility is rising from $105,000 to $109,000. The phase-out limit is increasing from $125,000 to $129,000.
- For a married joint filer with a spouse covered by a workplace retirement plan and you are not, the income limit for full eligibility is increasing from $198,000 to $204,000 and the phase-out limit will be $208,000, up from $198,000.
Those who start early and contribute the maximum allowed to a traditional IRA will find that these limits will dramatically increase the value of their accounts at retirement time.
Roth IRA Changes in 2022
The Roth IRA is different from the Traditional IRA in that contributions are not tax deductible, but the money withdrawn in retirement is tax free. With the traditional IRA withdrawals are taxable. Here are the changes in the Roth IRA:
- Single taxpayers and heads of household will find that their income limit for full eligibility is increasing in 2022 from $125,000 to $129,000. Their phase-out limit is increasing from $140,000 to $144,000.
- Married joint filers will have full eligibility income limits increased from $198,000 to $204,000. Phase-out limits will rise from $208,000 to $214,000.
There will be many taxpayers who have previously not been eligible for full contributions that will find they are now able to increase their contributions moving forward. Keeping abreast of changes like this is important. Working with a full service accounting and tax firm will assure you maximum tax advantages and constant monitoring of tax law.
i Great News for Retirement Savers in 2022 – Fool.com