There is an obvious major benefit to contributing to a 401K retirement savings plan. A 401K has a higher contribution limit than an IRA offers, and for 2022, 401K contributions are even higher.
What’s Changing in 2022
Current 401K contributions for 2021 are maxed out at $19,500 for savers under the age of 50, and max at $26,000 for savers over 50. The reason for the higher limit for those over 50 is what’s called a catch-up contribution. The IRS has set rules for catch-up contributions, learn more here.
For 2022 however, the contribution limit has been raised to an annual limit of $20,500, and $27,000 for savers over the age of 50.
One benefit for savers who max out their 401K contributions in 2022 is the expected tax savings. Contributions to 401Ks are made with pre-tax money, so the more that’s contributed, the more that the account holder saves. The extra $1,000 can make a big difference for those in a higher tax bracket.
What About IRAs?
As it sits now, IRAs have an unchanged max annual contribution limit of $6,000, and $7,000 for those over the age of 50. For 2022, it’s unfortunate for IRA savers, but IRA contributions are not increasing.
Saver’s Credit
Also known as the Retirement Savings Contributions Credit is a non-refundable tax credit of up to $1,000, $2,000 for married savers who file jointly. The exact amount will depend on how much money is contributed to the retirement account, and how much of the contributed qualifies.
Maximum Amount for Married Savers
401K accounts are for individuals by IRS law. Two people cannot own the same 401K. For 2022, savers under 50 can each contribute $20,500, a total of $41,000 in tax-advantaged contributions.
If either saver is over 50, an additional $6,500 can be contributed.
Yet to be announced are any changes to the standard deduction amounts, tax bracket thresholds, and other items included in the IRS tax code. Analysts from Bloomberg Tax and Accounting expect a jump of 3% due to the high inflation experienced in 2021.
