401k Limits 2022: What to Keep in Mind

Savers can stash more money in many tax-advantaged accounts in 2022, according to the IRS.

In November 2021, the agency announced cost-of-living adjustments on contributions to retirement plans in 2022. Inflation, or the general rise in the price of goods and services across the economy, affects the purchasing power of your savings and investments. Allowing people to set aside more for retirement can help them reduce its effect.

Many of the accounts saw slight upticks for 2022, except for IRAs. There’s a “logical reason” for that, says Mark Prendergast, a CPA and CFP who is also the director of tax strategies at Inspired Financial in Huntington Beach, California.

“Behind the scenes, the IRS calculates that cost-of-living increase, but they’ll only increase the IRA limit in $500 increments,” he says. If their calculations estimate the change at $6,400 from $6,000, for example, “then we aren’t getting to $6,500 yet. Once it gets past $6,500, then it goes up from there.”

How much you can save for retirement in 2022

401(k)s, 403(b)s, most 457 plans, and Thrift Savings Plans

2022 contribution limit: $20,500

2021 contribution limit: $19,500

Catch-up contributions: People age 50 or older can make additional deposits to some retirement accounts, including a 401(k). There is no change to this limit for 2022. Older savers can contribute up to an extra $6,500, for a maximum total contribution of $27,000.

IRAs and Roth IRAs

2022 contribution limit: $6,000

2021 contribution limit: $6,000

Catch-up contributions: There is no change to this limit for 2022. Older savers can contribute up to an extra $1,000, for a maximum total contribution of $7,000.

Even though IRA contribution limits are unchanged, the IRS did boost income limits. You can earn a little more in 2022 and still potentially contribute to a Roth IRA, or claim a deduction on traditional IRA contributions. For example, a single individual could have an adjusted gross income of up to $144,000 in 2022 and still make Roth IRA contributions, up from a cap of $140,000 in 2021.

SIMPLE IRAs

2022 contribution limit: $14,000

2021 contribution limit: $13,500

Catch-up contributions: There is no change to this limit for 2022. Older savers can contribute up to an extra $3,000, for a maximum total contribution of $17,000.

How much you’d need to save per paycheck to max out your contributions in 2022

Younger investors can contribute a max of $20,500 to their 401(k)s, and $6,000 to an IRA in 2022, per the IRS. Here’s how much money you would need to save per paycheck in order to reach those limits, assuming you are paid biweekly and bring in 26 paychecks in a calendar year.

• For $20,500 in 401(k) contributions in 1 year: $788 per paycheck

• For $6,000 in IRA contributions in 1 year: $230 per paycheck 

‘If you get a raise, increase your contributions’

To stay on top of your savings, consider automating your contributions, suggests Prendergast. “Anything you can do so [funds] automatically go toward retirement” is a plus.

If you’re saving in a workplace plan, contributions typically come out of your paycheck. For other accounts, you might set up automatic transfers to coincide with each payday. Plus, “a lot of employers allow deposits to go to two places,” Prendergast says. So you could split your paycheck to save in several accounts at once.

Take advantage of windfalls to help scale up contributions over time. “If you get a raise, then increase your contributions,” says Prendergast. If you get a windfall when “a grandmother or a parent gives you a gift, that’s extra cash to boost contributions the following month.”