Whether you've got retirement savings in an individual retirement account (IRA), 401(k), 403(b) or another plan, the IRS has made changes that particularly affect your contributions in 2022. These announcements include increased contribution limits for certain retirement plans and new income limits for deducting traditional IRA contributions, making Roth IRA contributions and claiming the Saver's Credit. Take a look at how these changes affect you as a taxpayer and saver.
Consider also: How Much Money Will You Need to Retire?
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Retirement Savings Tax Credit Limit
The IRS offers the Saver's Credit for taxpayers who contribute to a workplace retirement plan or IRA and who don't have dependent or student status. If you qualify, you can get a tax credit on your income tax return worth 10, 20 or 50 percent of the total amount of retirement contributions during the calendar year.
The IRS has raised the qualifying adjusted gross income limits for 2022 as follows:
- Single taxpayers get a 50 percent credit when earning $20,500 or less, 20 percent credit when earning $20,501 to $22,000, 10 percent credit when earning $22,001 to $34,000 and no credit thereafter.
- Heads of household get a 50 percent credit when earning $30,750 or less, 20 percent credit when earning $30,751 to $33,000, 10 percent credit when earning $33,001 to $51,000 and no credit thereafter.
- Married couples filing jointly get a 50 percent credit when earning $41,000 or less, 20 percent credit when earning $41,001 to $44,000, 10 percent credit when earning $44,001 to $68,000 and no credit thereafter.
Retirement Plan Contribution Limits
The IRS limits contributions to retirement plans depending on your account type, and certain contribution limits will increase for 2022.
Traditional and Roth IRA accounts maintain a $6,000 contribution limit ($7,000 for taxpayers 50+) per tax year. However, qualified retirement plans such as 401(k), 457, Thrift Savings Plans and 403(b) accounts now have a higher $20,500 ($27,000 for those 50+) limit. SIMPLE 401(k) and SIMPLE IRA plan participants will have a $14,000 ($17,000 if 50+) limit.
Keep these new limits in mind since you can contribute to tax-deferred accounts such as 401(k)s and traditional IRAs to reduce your taxable income now and pay the taxes upon withdrawal instead. On the other hand, your Roth IRA doesn't provide a tax deduction now but allows for tax-free withdrawals later.
Consider also: How Do 401(k) Matches Work
Whether you've got retirement savings in an individual retirement account (IRA), 401(k), 403(b) or another plan, the IRS has made changes that particularly affect your contributions in 2022.
Traditional IRA Deduction Phase-Out Ranges
If you want to take advantage of the income tax deduction for traditional IRA contributions, keep in mind the IRS has raised the modified adjusted gross income phase-out ranges for 2022.
As long as you and your spouse aren't covered by a workplace retirement plan, you can deduct all your traditional IRA contributions. If you're filing jointly and your spouse has a workplace retirement plan, you can get a full deduction with a maximum income of $204,000 or a partial deduction with an income between $204,000 and $214,000.
If you're covered by a workplace plan, you can get a full deduction if you're single or the head of household making $68,000 or under or married filing jointly and making $109,000 maximum. Partial deductions exist for single taxpayers and heads of household making $68,001 to $77,999 and married couples filing jointly earning $109,001 to $128,999.
Roth IRA Contribution Phase-Out Ranges
The IRS requires you to make under a certain modified adjusted gross income to qualify to contribute to a Roth IRA at all.
Eligibility to make the full amount of Roth IRA contributions in 2022 requires earning below $204,000 if married filing jointly or $129,000 if single or head of household. You'll be able to make a partial contribution if you're married filing jointly and earning between $204,000 or $214,000 or you're filing as single or head of household and making between $129,000 and $144,000.
No 2022 Changes for Withdrawals
The 2022 changes won't affect rules for withdrawals. So, early withdrawals (except hardship or qualifying Roth account withdrawals) before age 59 1/2 usually still come with a 10 percent penalty. You'll also need to pay income taxes on withdrawals from tax-deferred retirement plans.
Retirees will also need to take required minimum distributions (RMDs) from retirement accounts requiring them. Otherwise, the IRS charges a 50 percent tax on what they should have withdrawn.
Consider also: Hardship Withdrawal Rules for a Fidelity Investments 401(k)
- IRS: IRS Announces Changes to Retirement Plans for 2022
- IRS: Retirement Savings Contributions Credit (Saver’s Credit)
- IRS: 2022 IRA Contribution and Deduction Limits Effect of Modified AGI on Deductible Contributions If You ARE Covered by a Retirement Plan at Work
- IRS: 2022 IRA Contribution and Deduction Limits Effect of Modified AGI on Deductible Contributions if You are NOT Covered by a Retirement Plan at Work
- IRS: Retirement Plan and IRA Required Minimum Distributions FAQs
- IRS: Retirement Topics - 401(k) and Profit-Sharing Plan Contribution Limits
- IRS: Amount of Roth IRA Contributions That You Can Make for 2022