Improve How You Save for Retirement: IRS Updates

If your New Year's resolution is to boost your retirement savings, this year's IRS contribution limits can help.

The agency recently raised the contribution limits for workplace retirement plans – the first increase in three years. The IRS also pushed up income limits to qualify for other retirement accounts and tax breaks.

Here are the details:

Workplace Retirement Plans
Beginning in 2022, you can set aside an extra $1,000 in 457, 403(b), or 401(k) plans for a total of $20,500 for the year. Workers age 50 and over can contribute an additional $6,500 (unchanged from 2021), for a total of $27,000 for the year.

An extra $1,000 per year may not sound like much, but it can add up. For example, if you contributed $83 more each month ($996 a year) and earn a 7% annual return, that money alone would grow to $42,125 over 20 years. (Use our Grow Your Savings calculator to see the impact of raising contributions.)

Some 457 plans also allow workers to double their annual contributions for the three years before their normal retirement age. With the changes in contribution limits, these catch-up contributions now total $41,000 per year. (Note: You can't make this catch-up contribution and the one for those age 50+ at the same time.)

An annual $3,000 catch-up contribution permitted by some 403(b) plans has not changed.

Have questions about how much you can save to your retirement plan? Contact your MissionSquare Retirement Plans Specialist.

IRAs
While contribution limits for traditional and Roth IRAs aren't going up (the most you can contribute to an IRA in 2022 is $6,000, plus an extra $1,000 if you're age 50 or over), the IRS has raised the income limits for making a deductible contribution to a traditional IRA and to qualify for a Roth.

Singles with modified adjusted gross incomes (MAGI) of less than $68,000 and married joint filers with income under $109,000 can deduct their full contributions to a traditional IRA for the 2022 tax year. Deductions are then reduced and phased out completely once income reaches $78,000 for singles and $129,000 for joint filers.

Contributions to a Roth IRA aren't deductible, but your withdrawals in retirement are tax-free. Full contributions can be made by singles with MAGI under $129,000 and joint filers with income under $204,000. Partial contributions can be made thereafter and then phase out once MAGI reaches $144,000 for singles and $214,000 for joint filers.

Saver's Credit
If you sock away money in an IRA or other retirement plan, you may also be eligible for the Saver's Credit that reduces your tax bill dollar for dollar.

The income limits to qualify have been increased for 2022. The Saver's Credit is now available to single filers with an adjusted gross income of up to $34,000 and to joint filers with income of up to $68,000.

The credit is worth 50%, 20%, or 10% of the first $2,000 an individual contributes to a retirement account ($4,000 for joint filers). The lower your income, the higher the credit.