Retirement savers will be given a bit more flexibility when we flip the calendar to next year. Last week, the Internal Revenue Service (IRS) announced new contribution limits to various retirement savings vehicles effective for the 2022 tax year.
The Individual Retirement Account (IRA), one of the most popular retirement savings vehicles among investors, will see it's $6,000 contribution limit remain un-changed in 2022. Catch-up contribution, which are granted to IRA contributors aged 50 or older, will be limited to $1,000 as they were in 2021.1
For employer sponsored retirement plans (i.e. 401(k), 403(b), amongst others), individual contribution limits will rise $1,000 next year to $20,500 (Previously $19,500). Catch-up contribution limits for plan participants aged 50 or older will not receive a similar increase as they will remain unchanged at $6,500.1
Income phase-out limitations for Roth IRA contribution eligibility will also be increasing in 2022. To be eligible to make a ROTH IRA contribution in 2021, a single filer could not exceed $125,000-$140,000 in adjusted gross income (AGI) while a married couple filing jointly was limited to $198,000-$208,000. For 2022, these adjusted gross income (AGI) limitations have been extended to $129,000-$144,000 for single filers, and $204,000-$214,000 for those filing jointly as married couples.1
Lastly, investors in SIMPLE IRA Plans (SIMPLE is an acronym for Savings Incentive Match Plan for Employees), will see contribution limits increase from $13,500 (2021 Limit) to $14,000 in 2022.1
Planning for annual retirement saving is a crucial step in the financial planning process and understanding these limitations will help you maximize your savings potential. If you have questions about these changes, of if you would like more information about saving for retirement, please contact one of our Capstone Wealth Management Group advisors at (570) 587-7800 (office) or 888-587-7526 (toll free).
1. CNBC.com, Friday, November 5, 2021
The material contained within this post is for general information purposes and should not be construed as specific tax or investment recommendations/advice. Please consult with a tax advisor before making a contribution to a retirement account.
Once you reach age 72, you must begin taking required minimum distributions from a Traditional Individual Retirement Account (IRA) or Savings Incentive Match Plan for Employees IRA in most circumstances. Withdrawals from Traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
Once you reach age 72, you must begin taking required minimum distributions from your 401(k), 403(b), or other defined-contribution plans in most circumstances. Withdrawals from your 401(k) or other defined-contribution plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawal can also be taken under certain other circumstances, such as the owner's death. The original Roth IRA owner is not required to take minimum annual withdrawals.
2022 Contribution Limits
November 19, 2021