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Key 2022 Investment and Other Numbers Thumbnail

Key 2022 Investment and Other Numbers

Retirement Funding Taxes

The calendar will flip over before we know it. And with the passing of another year, more than a few things will change in regards to your ability to contribute to some accounts and the amounts you can contribute to them. Let's take a look.

Retirement Account Contribution Limits

Limits on contributions to retirement accounts are index to inflation. And since we're seeing a bit more inflation than we're used to, the contribution limits to most types of retirement accounts have gone up a fair bit.

  • 401(k) Accounts (also 403(b), 457 and TSP) salary deferral limit increases by $1,000 to $20,500. Catch-up contributions are likely to remain at $6,500 for a total of $27,000 for those age 50 or older.
  • Defined Contribution limits increase as well to $61,000 (a $3,000 increase). This is the total that can be contributed to a 401(k) (plus its relatives) when employer contributions are included. The amount is increased by $6,500 for those 50 or older. It is important to note that for employer contributions to be deductible for the employer, they can't exceed 25% of the employee's compensation. The limit also applies to defined contribution plans that are much less common
  • Amazingly, contribution limits to IRAs (Roth and Traditional) are unchanged. It seems strange, but even at 5% inflation, the increase would be $300 and the IRS only makes changes in $500 increments. So, we'll probably see an increase in 2023.
  • SEP-IRA contributions will increase by $3,000 to $61,000 (but also have the 25% of compensation limit as a Defined Contribution plan)
  • SIMPLE-IRA contribution limits increase by $500 to $14,000
  • HSA and FSA contribution limits increase by $100

Retirement Account Participation Limits

  • The ability to contribute to a Roth IRA (pay attention if you've just retired or haven't retired from the military yet) is limited and phases out. For married couples, the start of the phase out increases by $6,000 to $204,000 and will be completely phased out by $214,000. For those of you who file single, the phase out range is from $129,000 - $144,000 and increase of $4,000 (note also that the phase out range for singles is $15,000 and for married couples it is $10,000).
  • If you're not covered by a retirement plan at work, contributions to a Traditional IRA are fully deductible. If you're covered by a retirement plan at work the deduction can be limited (you can always make the contribution, you just might not be able to deduct it). The limits increase $4,000 and the new phase-out range is $109,000 - $129,000 for married taxpayers. For single taxpayers, the limits increase by $2,000 to $68,000 - $78,000. If one taxpayer in the couple is covered by a retirement plan at work, then the limits for deducting a Traditional IRA contribution for the other spouse are the same as for Roth IRAs.


One Other Thing to Note

Not only do Social Security benefits increase with inflation, but so does the amount of Social Security taxes you pay. You pay Social Security taxes up to an annual limit. In 2021 you paid Social Security taxes up to $142,800 of wages and/or self-employment income. In 2022, the limit will be $147,000. If you were over the limit in 2021 and will be in 2022, you'll pay $260.40 more in Social Security taxes.

If you found this article interesting, you might like the following blog posts:

Military Finances 301: Donating a Car (or Boat) and the Tax Effects


Retired Military Finances 201: Remote Work and State Income Taxes


Military Finances 301: Tax Efficient Support to Charity


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