IRS Announces Retirement Account Changes for 2022
Toward the end of each tax year the IRS announces a mass of changes for the next tax year in just about every section of the tax code. Tax year 2022 is no exception, and there are announced changes to business retirement plans for employeesi. The headline of the announcement is that the IRS has increased the contribution limit on 401(k), 403(b), and most 457 plans to $20,500 from $19,500. This also applies to contributions to the federal government’s Thrift Savings Plan.
Changes in Phaseouts for Traditional IRA
Plan participant income ranges determine eligibility to make contributions to Traditional or Roth IRAs. Contributions to a traditional IRA can only be deductible under certain income conditions, and the deduction may be reduced or phased out depending on filing status and income if the taxpayer or a spouse is covered by a retirement plan at work. The phaseout ranges for 2022 are:
- For single taxpayers covered by a workplace retirement plan, the phaseout range will be $68,000 – $78,000 in 2022, up from $66,000 – $76,000.
- The phaseout range increases from $105,000 – $125,000 to $109,000 – $129,000 for married couples filing jointly when the spouse making the contribution is covered by a workplace retirement plan.
- If the IRA contributor is not covered by a workplace plan but is married to someone who is covered, the phaseout range increases from $198,000 – $208,000 to $204,000 – $214,000.
- For a married individual covered by a workplace plan, the phaseout range remains $0 – $10,000.
Changes in Phaseouts for the Roth IRA
Contributions to a Roth IRA are not deductible, as the tax advantage is on the other end when withdrawals are not taxable. However, there are phaseouts for contribution limits based on taxpayer income.
- For singles and heads-of-household, the phaseout is increased from $125,000 – $140,000 to $129,000 – $144,000.
- For married couples filing jointly, the phaseout is increased from $198 – $208,000 to $204,000 – $214,000.
- The income limit for Saver’s Credit (Retirement Savings Contributions Credit) for low and moderate income workers:
- For married couples filing jointly the phaseout increases from $66,000 to $68,000.
- For heads of household, up from $49,500 to $51,000.
- For singles and married individuals filing separately, the phaseout increases from $33,000 to $34,000.
Unchanged Employee Contribution Limits
- The annual contribution limit to an IRA remains at $6,000.
- The catch-up contribution for individuals over 50 years of age remains at $1,000.
- The catch-up contribution limit for 50+ year old individuals remains at $6,500 for:
- 401(k)
- 403(b)
- 457 plans
- Federal government Thrift Savings Plan
- For those plans the taxpayer can contribute up to $27,000 in 2022.
The rules governing qualified retirement accounts are complicated. Consulting with your tax advisors is best for the protection of your future retirement income and the minimization of taxes in current or future years. Both business owners and employees can benefit greatly from properly structured retirement plans.