Generally, the amount that you can contribute to IRAs and retirement plans are indexed for inflation each year. In 2022, the contribution limit for IRAs is the same as it was for 2021. However, other key numbers have increased, like how much you can put in an employer-provided retirement plan. The phaseout thresholds for deductible IRA contributions and contributing to Roth IRAs have adjusted as well.

2022 Traditional IRA Contributions

For 2022, the maximum amount you can contribute to a traditional IRA or Roth IRA is $6,000 (or 100% of your earned income, if less than $6K). For those age 50 and older, you can still contribute an additional $1,000 catch-up contribution. You can contribute to both a traditional IRA and a Roth IRA, but your total IRA contributions (traditional and Roth) can’t exceed the annual limit.

IRA Contribution Deductibility

Not covered by a work-based retirement plan

If you (or you and your spouse) do not have an employer-provided retirement plan, in general, your contributions to a traditional IRA will be fully tax deductible.

One spouse covered by a work-based retirement plan, other spouse not covered

If you are married, filing jointly, and one of you is not covered by an employer-provided retirement plan but the other spouse is, your deduction gets phased-out if your modified adjusted gross income (MAGI) falls between $204,000-$214,0000. If your MAGI is over $214,000, your IRA contribution will not be tax deductible.

Covered by work based-retirement plan

If your employer provides a retirement plan and you file single or head of household, you can fully deduct an IRA contribution if your income is below $68,000. If you are married and filing a joint return, you can fully deduct an IRA contribution if your income is less than $109,000.

• If you file single or head of household, your IRA deduction is limited if your MAGI is between $68,000-78,000. You can’t deduct IRA contributions if your income is above $78,000.
• If you file married filing jointly or qualifying widow(er), your IRA deduction is limited if your MAGI is between $109,000-129,000 (combined). You can’t deduct IRA contributions if your income is above $129,000.
• If you file married filing separately, your IRA deduction is limited if your MAGI is between $0-10,000. You can’t deduct IRA contributions if your income is above $10,000.

Roth IRA Contributions

You can contribute to a Roth IRA if your income is within certain limits. If you are filing single or head of household, you can contribute the full $6,000 ($7,000 if you are 50 or older) to a Roth IRA if your MAGI is $129,000 or less. If you file married filing jointly, you can make a full contribution if your MAGI is $204,000 or less.

• If you file single or head of household, your Roth IRA contribution is limited if your MAGI is between $129,000-144,000. If your income is above $144,000, you can’t contribute to a Roth IRA.
• If you file married filing jointly or qualifying widow(er), your Roth IRA contribution is limited if your MAGI is between $204,000-214,000 (combined). If your joint income is above $214,000, you cannot contribute to a Roth IRA.
• If you file married filing separately, your Roth IRA contribution is limited if your MAGI is between $0-10,000. If your income is above $10,000 you can’t contribute to a Roth IRA.

Work-Based Retirement Plans

If you are an active participant in your employer-provided retirement plan, know that in 2022 you can save a little more!  This year, the maximum you can elect to defer to a 401(k), 403(b), 457(b), or Federal Thrift Savings Plan is $20,500. If you are 50 or older, you can contribute an additional $6,500 for a total of $27,000. Special catch-up limits apply to certain participants in 403(b) and 457(b) plans.

In 2022, you can contribute $14,000 to a SIMPLE IRA or SIMPLE 401(k). The catch-up limit for those age 50 and older is $3,000, for a total of $17,000.

Just a reminder, in these work-based retirement plans, your contributions cannot exceed 100% of your income!

Also, if you participate in more than one retirement plan, you may or may not have to aggregate your contributions when determining your maximum annual contribution. You will need to aggregate contributions to 401(k) plans, 403(b) plans, and SIMPLE plans to make sure that you don’t exceed the total annual limit. Deferrals to section 457(b) plans are considered separately.  For example, if you are under age 50 and have a 401(k) plan at one job and a 457(b) plan at another job, you can save $41,000 into your retirement plans ($20,500 into each account).  If instead you had a 401(k) at one job, and a different 401(k) at another job, you would be limited to $20,500 in total annual contributions.

Income Tax and Retirement Planning at Windward

At Windward Private Wealth Management we help our clients select which retirement accounts to save in to and help navigate the tax aspects of these different types of accounts. Contributions limits, tax laws, and your financial circumstances change. Working with a wealth management team to stay on top of your income tax situation can save you money in the long run and provide peace of mind that you are working towards financial independence.

 

 

Sources:

Broadridge Advisor Solutions “Retirement Plan Limits on the Rise in 2022.” AICPA.org, 2/18/2022

This content is provided by Windward Private Wealth Management Inc. (“Windward” or the “Firm”) for informational purposes only. Investing involves the risk of loss and investors should be prepared to bear potential losses. No portion of this blog is to be construed as a solicitation to buy or sell a security or the provision of personalized investment, tax or legal advice. Certain information contained in the individual blog posts will be derived from sources that Windward believes to be reliable; however, the Firm does not guarantee the accuracy or timeliness of such information and assumes no liability for any resulting damages.

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