With only six weeks left in 2021, taxpayers are reviewing their retirement saving opportunities for this year and for 2022. A retirement savings review often comes to mind at year-end and at tax time, since retirement plan contributions are often fully or partially tax deductible, depending on the taxpayer’s circumstances.
Individuals who earn taxable compensation during the year are eligible to contribute to a retirement plan, such as a traditional or Roth Individual Retirement Account (IRA). They can also participate in an employer-provided retirement plan, like a 401(k), 403(b), or the federal government’s Thrift Savings Plan. The tax rules for figuring out the tax savings from retirement plan contributions are complicated, and they apply differently to different taxpayers.
One set of tax rules that applies to all taxpayers is retirement plan contribution limits. Every year, the IRS publishes the dollar contribution limit by retirement plan type. Some years there is no dollar adjustment, but there’s no way to know without checking.
So, what are the 2022 contribution limits for IRAs and most employer-sponsored retirement plans?
Traditional and Roth IRAs
Total contributions made to all of a taxpayer’s traditional and Roth IRAs for 2022 can’t be more than total taxable compensation for the year, up to $6,000. The limit increases to $7,000 for taxpayers who are age 50 or older, to help those taxpayers who have a shorter time frame until retirement and need to “catch-up” on contributions to fund their future income needs.
Employer-sponsored plans, like a 401(k) or a 403(b), are types of qualified profit sharing plan that allow employees to contribute a portion of their wages pre-tax to an individual account. The employee contribution limit increased for 2022, up from $19,500 to $20,500. The employer may also contribute to employees’ accounts; however, employer contributions do not impact employee contribution limits.
Tax rules for figuring out the tax savings from retirement plan contributions are complicated, and they apply differently to different taxpayers. Plus, the contribution limits are different based on the retirement plan type. Contribution dollar limits are subject to change every year. Tax savings depends on each taxpayer’s circumstances.
Want more details about retirement plan options, contribution limits and tax savings? The IRS has it all at https://www.irs.gov/retirement-plans/plan-sponsor/types-of-retirement-plans.