2022 Contribution Limit Changes

by | Dec 6, 2021 | Blog

If you save money for retirement, it’s important to know what the contribution limits are for your specific plan or account. Financial planning should start with the basics. You need to know how much you can contribute in order to figure out how much you should contribute. But like many things in the financial world, the contribution limits change quite often.

That’s why we always  say “financial planning is a process, not a one-time event.” You can’t just set and forget your financial plan. Things change all the time. And not staying up to speed could potentially mean money left on the table.

2022 Contribution Limit Changes

On the plus side, the 2022 contribution limit changes are a positive for retirement savers.

Starting in 2022, if you save for retirement in a workplace plan such as a 401(k), 403(b),  457, or the federal government’s Thrift Savings Plan (TSP) you will be able to save an additional $1,000. The annual contribution limit for workplace plans has been raised from $19,500 to $20,500 in 2022.

While the $1,000 might not seem like a big increase, trust the power of compound interest and believe that small incremental changes really do add up over time.

The catch-up contributions for retirement savers in these plans remain steady for 2022 at $6,500 per year. If you are over 50 and your plan allows it, you can contribute an additional $6,500 per year. This puts the contribution limit for folks over 50 at $27,000 per year.

These catch-up contributions can really make a difference as you approach retirement. From both a retirement planning and tax perspective, the benefits of doing these catch-up contributions are something to consider.

Also staying put for 2022 are traditional Individual Retirement Accounts (IRAs), with the limit remaining at $6,000. The catch-up contribution for traditional IRAs remains $1,000 as well.

Even though the limit for savings through an IRA is less than the limits for workplace plans, let’s remember the benefits of tax-deferred investing. The money that you would have paid in taxes remains in your account, compounding away. Tax-free contributions + tax deferred growth are two huge benefits! The more tax deferred dollars contributed, the better!

Of course, your current cash flow situation should be considered as well. It’s important not to stretch yourself too thin by contributing more than you can handle into your retirement accounts. That would be like putting the cart before the horse.

Another change that will be taking place in 2022 is the eligibility limits for Roth IRA contributions. This is also set to increase.

Just as a refresher, Roth IRA contributions ($6,000) are made with after tax dollars, as opposed to the pre-tax dollars of retirement plans or regular IRA’s. But, only the gains made in a Roth IRA are taxable upon distribution. Whereas distributions from IRA’s and retirement plans are usually taxed as ordinary income.

The new limits for single or head of household tax filers is $129,000 to $144,000. Up from $125,000 to $140,000.

If you file as a married couple the Roth eligibility limits are now $204,000 to $214,000. Up from $198,000 to $208,000.  

These changes go into effect in just a few short weeks. If you have automatic contributions from your paycheck set up, now would be a good time to speak with your employer if you need to make adjustments. These contribution changes can sometimes take a couple of pay periods to kick in.

2022 is right around the corner and while you want to finish out 2021 strong, it is time to start planning for next year so you can hit the ground running. Reviewing your retirement plan contributions would be a great place to start!

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