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Retirement, pension plan inflation adjustments for 2022

Older couple looking at a tablet
This could be you in a few (or more) years. Make sure your retirement days truly turn into golden years by saving for them now. And by using tax-advantaged accounts to their fullest.

If you're younger than I am, you need to be thinking about retirement. Actually, especially if you're younger than I am, you need to be thinking — and doing something — about your future retirement. You've got more time than I do (natch!) to build up your nest egg so you can retire the way you want.

Being in control of your retirement is especially important nowadays. True, some members of Congress are working on getting Social Security in better shape. And the government benefit's amount for 2022 will be the largest in 40 years.

But future benefits bumps of that size are not guaranteed. Neither is legislative action in Washington, D.C.

So it's time to start saving on your own. And today the Internal Revenue Service announced just how much you can stash in 2022 in tax-deferred — or tax-free — retirement accounts and pension plans.

Here are the highlights of what will, or in some cases won't, change when it comes to next year's retirement accounts.

No change for IRA contributions: Individual retirement arrangements — and yes, the official name is arrangements, not accounts, but the popular IRA acronym works either way — are a great way to save for post-work years.

You can contribute to a traditional IRA with pre-tax dollars and, depending on your income, marital status, and retirement options at work, possibly claim a deduction for at least some of the amount you're saving.

Or you can put already-taxed money into a Roth IRA and not have to worry about taxes on that retirement account ever again.

When it comes to either a traditional IRA or Roth version, inflation was not enough to mean an increase next year in the annual contribution limit. In 2022, it will remain at this year's level of $6,000.

The additional IRA catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment (COLA), so it also stays at $1,000.

More earnings for IRA maneuverability: However, the IRS has increased the 2022 income ranges that determine whether you can make deductible contributions to a traditional IRA, contribute at all to a Roth IRA, and/or claim the Saver's Credit.

Traditional IRAs are still popular because if you or your spouse don't have retirement plans at work, you can deduct your full IRA contribution.

If, however, either spouse is covered by a workplace retirement plan, the deductible amount of a traditional IRA contribution is phased out or totally eliminated depending on your filing status and income.

The table below shows how much more you can make in 2022 before you hit the level where your traditional IRA contributions are reduced or are no longer deductible. The 2021 amounts are shown, too, to give you an idea of the change and because you still have time to contribute to your IRA for this tax year.

 

2022 phase-out range
based on MAGI*

2021 phase-out range
based on MAGI*

Singles and
Heads of Households

who are covered at work by a retirement plan

$68,000 to $78,000

$66,000 to $76,000 

Married couples
filing jointly 
and the spouse making the contribution is covered by a workplace retirement plan

$109,000 to $129,000

$105,000 to $125,000

Married couples
filing jointly
and the contributing spouse has no workplace plan, but his/her spouse is offered a workplace retirement plan

$204,000 to $214,000

$198,000 and $208,000

Married individual
filing a separate return
 
and is covered by a workplace retirement plan**

$0 to $10,000

$0 to $10,000

*MAGI is modified adjusted gross income. (Shameless plug: The ol' blog's glossary has more on MAGI, as well as the previously mentioned individual retirement arrangement/account and lots of other tax terms.)
**There is no annual inflation adjustment in married filing separately situations.


More room for Roth contributions:
 Roth IRA contributions are not tax deductible when you make them, but withdrawals when you retire are not taxed.

These accounts also have some income limits.

For 2022, the amount you can put into a Roth is reduced if your earnings are within the income range for your filing status in the following table. As in the prior table, the 2021 amounts are included for comparison and tax planning for the rest of this year.

 

2022 phase-out range
based on MAGI

2021 phase-out range
based on MAGI 

Singles and
Heads of Households

$129,000 to $144,000

$125,000 to $140,000

Married couples filing jointly

$204,000 to $214,000

$198,000 to $208,000

 

Again, note the top dollar amounts. Once your income exceeds the maximum amount for your filing status, you cannot contribute to a Roth IRA.

You can, however, contribute to a traditional IRA and then convert that account to a Roth IRA.

Just like a traditional IRA, the phase-out range for a married individual making Roth contributions while filing a separate tax return is not subject to an annual COLA and stays at $0 to $10,000.

Workplace plan changes, too: In addition to IRAs, some folks are able to stash retirement money in workplace defined contribution accounts, typically known in the private sector as 401(k)s.

401k workplace retirement plan road sign

While they're technically not a part of the annual benefits enrollment season underway at most companies right now, the just-announced 2022 tax year changes to 401(k) plans gives you the chance to include these contributions in your overall analysis of your workplace perks.

The tax code monikers for company-provided retirement plans are slightly different for folks employed by other groups. They're known as 403(b) for some nonprofits and teachers, 457 plans for certain government employees and Uncle Sam's Thrift Savings Plan (TSP) for civil service employees and retirees, as well as for members of the uniformed services. But all are affected but the same COLA changes tend to apply.

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans and the TSP goes up in 2022 to $20,500. That's a nice bump up from this year's $19,500 contribution cap.

The catch-up contribution limit in 2022 for employees aged 50 or older and who participate in these plans remains unchanged, staying at this year's $6,500 level.

And if you're lucky enough to work for a place that has an old-school defined benefit plan — this is where your boss takes total care of your retirement fund — there's a hike here, too. The limitation on the annual benefit of this retirement plan goes from $230,000 in 2021 to $245,000 in 2022.

Self-employed plan bumps: When you're the boss at your own company, in addition to concentrating on turning a profit, you need to think about the day when you decided to relinquish control.

SEP-IRAs (or, from the glossary, Simplified Employee Pension) and Solo 401(k) plans are popular retirement vehicles for the self-employed small business owners.

The maximum amount that can be put into either of these plans as an employer is determined by a percentage of salary. Once those calculations are completed (thank goodness for tax pros and/or tax software!), the maximum in 2022 will be $61,000. That's an increase from 2021's $58,000.

The amount of earnings amount used to figure your SEP or SoloK contribution also goes up next year. The compensation of $290,000 in 2021 goes to $305,000 in 2022.

If you have a SIMPLE, or savings incentive match plan for employees (final, I swear, glossary plug), the limit on SIMPLE plans for 2022 goes up a bit to $14,000 from the 2021 limit of $13,500. But the SIMPLE catch-up limit for individuals aged 50 or older in 2022 stays at this year's $3,000 level.

Added credit for saving: A tax code bonus for taking charge of your retirement, the Saver's Credit, also potentially is affected each year by inflation. This tax benefit, officially titled the Retirement Savings Contributions Credit, rewards low- and moderate-income individual for adding to their nest eggs.

This credit, which is a dollar-for-dollar reduction in any tax you owe, is $1,000.

You can claim the Saver's Credit based on the money you put into IRAs and workplace plans, either where you are an employee or are self-employed. But it is not available if you make more than the earnings limit for your filing status.

In 2022, the Saver's Credit maximum earnings caps go to:

  • $34,000 for singles and married filing separately taxpayers, up from $33,000 in 2021;
  • $51,000 for heads of household, up from $49,500 this year; and
  • $68,000 for married couples filing jointly, up from the 2021 limit of $66,000.

Here's the full table and percentages, based on your adjusted gross income (AGI) for the 2022 Retirement Saver's Credit:

Credit Amount

Single, married filing separately or qualifying widow/er

Married filing jointly

Head of household

50% of your contribution

AGI not more than $20,500

AGI not more than $41,000

AGI not more than $30,750

20% of your contribution

$20,501 to $22,000

$41,001 to $44,000

$30,751 to $33,000

10% of your contribution

$22,001 to $34,000

$44,001 to $68,000

$33,001 to $51,000

No credit

$34,001 or more

$68,001 or more

$51,001 or more

 

And if you're looking to claim the Saver's Credit on your 2021 tax return, you can do so if your income this year falls within the following income ranges

Credit Amount

Single, married filing separately or qualifying widow/er

Married filing jointly

Head of household

50% of your contribution

AGI not more than $19,750

AGI not more than $39,500

AGI not more than $29,625

20% of your contribution

$19,751 to $21,500

$39,501 to $43,000

$29,626 to $32,250

10% of your contribution

$21,501 to $33,000

$43,001 to $66,000

$32,251 to $49,500

No credit

$33,001 or more

$66,001 or more

$49,501 or more

 

But wait, there's more, and more to come, inflation figures: These retirement plan inflation adjustments are a lot of numbers, but if you want more, you can peruse the official details on the 2022 COLA changes to retirement plans in IRS Notice 2021-61.

And speaking of more inflation numbers, this post marks the retirement portion of the ol' blog's annual 10-part tax inflation series. Although this post went up before some others, in keeping with the series' tradition, it is Part 3.

The IRS typically releases the retirement numbers separately from the massive notice that affects a wide variety of other tax provisions. Rather than dump it all on my readers at once — and to spread out the work I have to do to translate the data to posts — I've taken the series route. When all the 2022 inflation figures are done, they will be in 10 separate posts, with a directory linking them all.

The other nine inflation posts, ranging from income tax brackets to standard deduction amounts to health-related tax components to estate taxes, will be posted as soon as the IRS releases the rest of the information for 2022. Stay tuned!

UPDATE, Nov. 10, 2021: And now, as promised — threatened? ;) —  the link to the start of the 2022 tax inflation series is posted. The box below has a link to it. 


Thanks for reading Part 3 of the ol' blog's series on 2022 tax inflation adjustments. 
The 10-part series started with a look at next year's income tax brackets and rates.
That first item also has a directory, at the end of the post,
of all of next year's tax-related inflation updates.
If, after perusing this look at next year's retirement and pension plan changes, 
you want to check out other inflation adjustments for 2022,
you'll find the links, when posted, there.
Note: The 2022 figures in this post apply to that tax year's returns to be filed in 2023.
For comparison purposes, you'll also find 2021 amounts that apply to this year's taxes that,
pending any COVID-19 Tax Day delays like we've faced the last couple of years, will be
due April 15, 2022.


 

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