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5 Retirement Account Changes for 2022 You Should Know

Worried about retirement savings? Find out how five beneficial IRS tax adjustments for 2022 will help you save more money for retirement and create a stronger financial future.

By
Laura Adams, MBA
4-minute read
Episode #712
The Quick And Dirty

Based on anual economic data, the IRS makes changes to various benefits and tax-advantaged accounts so they reflect the cost of living. The 2022 updates are favorable for Americans who want to cut their taxes and save more for retirement. 

Every year, the U.S. Treasury evaluates what's happening with inflation in the economy. Based on that data, the IRS must make changes to various regulations. Fortunately, many upcoming adjustments can help you save more for retirement. 

So, whether you're looking for ways to fight inflation or get the most from your retirement accounts, that's what this post will cover. I'll review five retirement account changes coming in 2022, so you can use them to your advantage.

5 Retirement Account Changes to Expect in 2022

  1. Higher contribution limits for workplace plans.
  2. Higher income limits for traditional IRA deductible contributions.
  3. Higher income limits for Roth IRA eligibility. 
  4. Higher income limits for the Saver's Credit.
  5. Higher contribution limits for retirement accounts for the self-employed.

Here are the details on how you can use the new retirement account changes to max out your contributions and pay less tax.

1. Higher contribution limits for workplace plans.

Starting in 2022, if your employer offers a workplace retirement plan, such as a 401(k) or 403(b), the base amount you can contribute increases from $19,500 to $20,500. The same adjustment applies to most 457 and Thrift Savings Plans (TSPs) if you work for the federal or local government.

So, make a goal to max out your retirement plan by updating your contribution percentage or dollar amount per pay period. You can make changes to your plan at any time during the year. In most cases, you can set a higher contribution rate to begin at a particular time, such as on January 1 each year.

Although this isn't new for 2022, it's also worth noting that if you're over 50, you can make an additional catch-up contribution of $6,500 to a workplace retirement plan, bringing your annual total to $27,000. 

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2. Higher income limits for traditional IRA deductible contributions.

Unfortunately, the base contribution or catch-up limit for IRAs is not going up in 2022. You can contribute up to $6,000 or $7,000 if you're over age 50. There's no income limit to qualify for a traditional IRA.

However, if you or your spouse contribute to a traditional IRA and a workplace retirement plan in the same year, whether you can claim a tax deduction for your IRA contributions depends on your income. And that income limit is going up in 2022.

To clarify, you can always make traditional IRA contributions when you (or a spouse) also have a workplace plan; however, some or all of your IRA contributions may be nondeductible if you earn over an annual limit. That's the government's way of limiting your tax benefit on these plans.

But the good news is that the income limit for deducting traditional IRA contributions will increase in 2022, giving more people the benefit of multiple retirement accounts. 

You need to know the income limits by tax filing status when you contribute to both a workplace retirement plan and a traditional IRA in the same year.

  • If you're single and have modified adjusted gross income (MAGI) of at least $78,000, your IRA contributions are nondeductible. That's an income limit increase of $2,000 from 2021.  

  • If you're married, file taxes jointly, and have household MAGI of at least $129,000, your IRA contributions are nondeductible. That's an increase of $4,000 from 2021. 

Let's say you don't have a workplace retirement plan, but your spouse does, and you contribute to a traditional IRA. In that case, your IRA contributions are nondeductible when your household MAGI is at least $214,000. That's an income increase of $6,000 from 2021.  

Remember that these income limits don't apply if neither you nor a spouse is covered by a retirement plan at work. You can always contribute to a traditional IRA and get a full tax deduction.

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3. Higher income limits for Roth IRA eligibility. 

Now, let's talk about Roth IRAs. Just like with traditional IRAs, the 2022 contribution limit remains $6,000, or $7,000 if you're over age 50. With a Roth, your contributions are never tax-deductible because you must pay tax upfront on them. And there is an annual income limit to qualify for Roth IRA contributions.

In 2022, the income limits for Roth IRA eligibility are going up. That's terrific because more people will qualify for these valuable accounts! The beauty of a Roth is that your withdrawals in retirement are entirely tax-free, allowing you to skip taxes on decades of potential investment growth.

Here are the MAGI limits by tax filing status you need to know for Roth IRA eligibility in 2022.

  • Singles can't contribute when they earn more than $144,000. That's a $4,000 increase from 2021.

  • Married couples filing jointly can't contribute when they have a household income higher than $214,000. That's a $6,000 increase from 2021.

Consider a Roth IRA if these higher income thresholds make you eligible. Unlike a traditional IRA, you can max out both a Roth IRA and a workplace retirement plan in the same year without any tax conflicts.  

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4. Higher income limits for the Saver's Credit.

Based on your income and other requirements, you may qualify for the Saver's Credit, also called the Retirement Savings Contributions Credit. It's a tax break for those with low income who contribute to a retirement account. 

For 2022, the income limits are going up as follows:

  • Singles must earn less than $34,000, which is an increase of $1,000 from 2021.

  • Heads of households must earn less than $51,000, a $1,500 increase.

  • Married couples filing jointly must earn less than $68,000, a $2,000 increase.

5. Higher contribution limits for retirement accounts for the self-employed.

A solo 401(k) and a SEP-IRA are two popular retirement accounts for the self-employed. In 2022, the contribution limits are increased to $61,000 from $58,000. And if you’re over age 50, there’s a $6,500 catch-up contribution, allowing total contributions of $67,500. That’s great news for solopreneurs and small business owners who want to sock away more for retirement.

This post isn't a complete list of all the retirement-related tax changes coming in 2022. To learn more, visit IRS.gov.

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About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.