2022 Retirement Savings Plans
401(k) Contributions Raised
The Internal Revenue Service (IRS) limits contributions to 401(k), IRA, Roth IRA and other retirement savings plans to prevent highly paid employees from receiving more benefits than the average employee. Contribution limits vary by the type of plan, the plan participant’s age and in some cases by how much someone earns.
For 2022, the IRS increased the amount employees can contribute to 401(k) and 403(b) plans, to most 457 plans, and to the federal government’s Thrift Saving’s Plan to $20,500. This is a $1,000 increase over the contribution limits in 2020 and 2021. Employees 50 and older can make a catch-up contribution of $6,500 — the same as last year.
The contribution limit for a SIMPLE IRA was also increased. A SIMPLE IRA is a retirement plan designed for small businesses with 100 or fewer employees. Employees can contribute an extra $500 in 2022 for a total of $14,000. The catch-up contribution limit for those 50 and older remains the same at $3,000.
However, for employees with individual retirement accounts, the IRA contribution limits remain unchanged, as they have since 2019. Traditional or Roth IRA contribution limits are $6,000. Catch-up contributions remain $1,000.
Retirement Age Higher
If you have employees who are counting the days till retirement, they will have to wait a little longer if they want to collect full Social Security payments during retirement.
Since the time when President Roosevelt signed the Social Security program into law in 1935, the age someone must reach to collect full benefits has been raised 12 times. The latest increase in full retirement age took effect this year. The full retirement age for those born in 1960 or later is now 67. (Retirement ages for those born earlier varies between 65 for individuals born in 1937 and prior and 66 and 10 months for those born in 1959.)
The Rich Pay More
The amount of FICA taxes taken from employees’ pay checks for Social Security taxes have a wage-based limit and are adjusted annually to reflect inflation. The maximum annual earnings that are subject to Social Security withholding in 2022 are $147,000 per employee.
There’s some controversy about the cap. Many wage earners earn less than the wage base limit, which means they pay tax on every dollar of their income. At the same time, the highest earners pay tax on only part of the money they earn. There is an assumption that lower wage-earners are the prime beneficiaries of Social Security and that those who earn more won’t need it — which was part of the original rationale for instituting the income cap. Critics of the cap believe that lifting the cap would result in a significant amount of additional revenue that could help cover the shortfall Social Security soon will face.
Last Year to Report Coronavirus-Related Distributions
In 2020, the pressure put on the economy by the pandemic meant that money was tight for many people. To help, the IRS allowed qualified individuals to take distributions of up to $100,000 from eligible retirement plans without paying an early withdrawal penalty. Anyone who did this could either report those distributions as income in one lump sum in the year they received the funds or spread the distribution out evenly over three years ending in 2022.
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