Taxpayers contributing to a 401(k) plan for their retirement have gotten some good news from the Internal Revenue Service: they can now put more money into their plan for 2022.

New instructions from the IRS raise the 2022 annual contribution limit on 401(k) plans from $19,500 to $20,500.

In addition, the IRS also issued technical guidance in Notice 2021-61 on all of the cost-of-living adjustments that affect limitations for pension plans and other retirement-related items for the 2022 tax year.

What are the 2022 changes?

The increase in the 2022 contribution limit applies not only to 401(k) plans, but to 403(b) plans, most 457 plans, and the federal government’s Thrift Savings Plan.

The income ranges used to determine eligibility have also been expanded for IRAs, contributing to Roth IRAs, and claiming the Saver’s Credit.

A taxpayer can deduct contributions to a traditional IRA as long as certain conditions are met.

If either the taxpayer or the spouse was covered by a retirement plan at work during the year, the deduction may be reduced - or phased out - until it’s eliminated. Filing status and income may influence this process.

Note that the phase-out of the deduction doesn’t apply if neither the taxpayer nor the spouse is covered by a retirement plan at work.

Here are the new phase-out ranges from the IRS for 2022:

• For single taxpayers covered by a workplace retirement plan, the phase-out range is increased to $68,000 to $78,000, up from $66,000 to $76,000.
• For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is increased to $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 phase-out range is increased to $204,000 to $214,000, up from $198,000 to $208,000.
• For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

Taxpayers contributing to a Roth IRA see an increased income phase-out range of $129,000 to $144,000 for singles and heads of household; Married couples filing jointly phase out at $204,000 to $214,000.

A married taxpayer who files a separate return and contributes to a Roth IRA has the same phase-out as before: $0 to $10,000.

Allowable income for the Saver’s Credit also increased. Also known as the Retirement Savings Contribution Credit, the Saver’s Credit income limit increased for low- and moderate-income taxpayers is now $68,000 for married-filing-jointly couples; $51,000 for heads of household; and $34,000 for singles and married taxpayers filing separately.

Taxpayers with a SIMPLE retirement account can also contribute more to their retirement, with the yearly limit for them now at $14,000.

What doesn’t change?

The new instructions from the IRS don’t change everything, however. Annual contributions to an IRA, for example, remain limited to $6,000. The catch-up contribution limit for IRAs isn’t subject to a cost-of-living adjustment and remains at $1,000.

Employees age 50 and over who take part in either a 401(k), 403(b), most 457 plans or the federal Thrift Savings Plan keep their same catch-up contribution limit of $6,500. This means those participants can contribute up to a total of $27,000 in 2022.

For those taxpayers age 50 and older with SIMPLE plans, the catch-up contribution limit remains at $3,000.

For additional details on retirement plan cost-of-living adjustments for 2022, see Notice 2021-61 on IRS.gov.

Source: IR-2021-216