November 16, 2021
During the closing months of the year, many Atlanta individuals look for opportunities to reduce federal income taxes. It is a common practice to review both federal and state tax credits and deductions to identify where opportunities may exist. In fact, 2021 appears to be the last year to leverage many of the now-expired federal COVID-19 tax credit programs. Despite the options, many taxpayers reduce taxes simply by contributing to a tax-deferred retirement plan such as a 401(k), 403(b), 457, or a Thrift Savings Plan. Often increasing the elective deferral amount and accelerating contributions at year-end can go a long way towards tax planning goals. However, it is necessary to be aware of the annual contribution maximums. In 2021 the maximum contribution amount for a 403(b) or 401(k) plan was limited to $19,500 per individual. The good news is these maximums are updated annually to account for necessary Cost of Living Adjustments (COLA). On November 4th, the IRS issued Notice 2021-61 which outlines the contribution limits for 2022. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.
The contribution limit for individuals that participate in an employer-sponsored retirement plan including a 401(k), 403(b) or 457 plan has been increased from $19,500 in 2021 to $20,500 in 2022. The contribution limit for Individual Retirement Accounts (IRAs) did not change and will remain at $6,000. Finally, the limitation for Savings Incentive Match Plan for Employees (SIMPLE) will increase to $14,000.
For 2022, the catch-up contribution maximum for 401(k), 403(b), and 457 plans remain at $6,000. Since IRA catch-up contribution is not subject to annual COLA increases it remains $1,000.
Starting on January 1st, the limitation on the annual benefit in a defined benefit plan is increased from $230,000 to $245,000. For those who separated prior to the start of the year, the participant’s limit is determined by multiplying the compensation limit by 1.0534. The limitation for defined contribution plans under section 415(c)(1)(A) is increased in 2022 from $58,000 to $61,000.
The income limit for the Retirement Savings Contribution Credit for low/moderate-income households will increase for 2022. The new limits are set at $68,000 for married couples filing jointly, $51,000 for heads of household, and $34,000 for single and married individuals filing separately.
The income phase-out for contributions to a Roth IRA will increase to $129,000 to $144,000 for single and heads of household, and $204,000 to $214,000 for married filing jointly. Since there is no phase-out for married individuals filing a separate return there is no annual COLA adjustment and it remains unchanged at $0 to $10,000.
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The new COLA adjusted maximums are designed to ensure plan participant contribution limits are appropriate based on changing economic conditions. The increased maximums represent an opportunity to realize additional tax savings in 2022 through proper planning. If you have questions about the new 2022 maximums or need assistance with a tax or accounting issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.