IRS Releases New Dollar Limitations for Retirement Savings Plan Actions

Retirement Planning for 2022: IRS Releases New Dollar Limitations for Retirement Savings Plan Actions

On October 28, 2021, the IRS released Notice 2021-61 outlining the cost-of-living adjustments to the dollar limitations for various retirement related actions for 2022. The notice also has limits on elective deferrals for plans under Sec. 401(k) and Sec. 403(b) and most plans under Sec. 457.

Cost-of-Living Adjustments for IRAs (Regular and Roth) – and the Saver's Credit
All increased for 2022: The adjusted gross income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the Saver's Credit.

The deductibility of contributions to a traditional IRA depends on if certain conditions are met by the taxpayer. If, during the year, the taxpayer and/or their spouse is covered by an employee retirement plan, the deductibility of the contributions may be reduced, or phased out altogether, depending on the filing status and the adjusted gross income (“AGI”) levels of the taxpayer.

Changes to the phase-out ranges for 2022 are as follows:

• For single taxpayers covered by a workplace retirement plan, the AGI phase-out range is $68,000 to $78,000, up from $66,000 to $76,000.
• For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the AGI phase-out range is $109,000 to $129,000, up from $105,000 to $125,000.
• For an IRA contributor who is not covered by a workplace retirement plan, and is married to someone who is covered, the deduction is phased out if the couple's AGI is between $204,000 and $214,000, up from $198,000 and $208,000.

The following are the AGI phase-out ranges for taxpayers making contributions to a Roth IRA:

• $129,000 to $144,000 for singles and heads of household, up from $125,000 to $140,000
• $204,000 to $214,000 for married couples filing jointly, up from $198,000 to $208,000

NOTE – For married filing separate returns, there is no AGI phase-out for either regular or Roth IRAs. The range for contributions remains $0 to $10,000.

The following are the AGI limits for the Saver’s Credit for low- and moderate-income workers:

• $34,000 for singles and married individuals filing separately, up from $33,000
• $51,000 for head of households, up from $49,500
• $68,000 for married couples filing jointly, up from $66,000

Pension Plan Limit Amounts for 2022

• The limit on contributions by employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan increases to $20,500 from $19,500
• Annual compensation limit under 401(a)(17), 404(l), 408(k)(3)(C), and 408 (k)(6)(D)(ii) increases to $305,000 from $290,000
• The catch-up contribution limit for employees aged 50 and over who participate in these plans remains unchanged at $6,500.
• The limitation regarding SIMPLE retirement accounts increases to $14,000 from $13,500
• The limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
• The limitation on the annual benefit under a defined contribution plan under Sec. 415(b)(1)(A) is increased to $245,000 from $230,000
• The limitation for defined contribution plans under Sec. 415(c)(1)(A) increases to $61,000 from $58,000

Please contact your Herbein team tax advisor at info@herbein.com if you have questions regarding the new pension plan amounts for 2022 or any other tax planning question.

Article prepared by Sean McGuire.