On November 4, 2021, the Internal Revenue Service (IRS) released Notice 2021-61 announcing cost-of-living adjustments affecting dollar limits for pension plans and other retirement-related items for tax year 2022. Many pension plan limits will change next year because the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. Other items, however, will not increase for 2022. Here is a summary of the limits for 2022.
For 401(k), 403(b), and most 457 plans and the federal government’s Thrift Savings Plans:
- The elective deferral (contribution) limit increases from $19,500 for 2021 to $20,500 for 2022.
- The catch-up contribution limit for employees aged 50 and over who participate in these plans will stay the same at $6,500 for 2022.
For individual retirement arrangements (IRAs):
- The limit on annual contributions will not change for 2022. It remains $6,000.
- The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment so it remains $1,000 for 2022.
For simplified employee pension (SEP) IRAs and individual/solo 401(k) plans:
- Elective deferrals increase to $61,000 for 2022, based on an annual compensation limit of $305,000 (up from the 2021 amounts of $58,000 and $290,000).
- The minimum compensation that may be required for participation in a SEP remains unchanged at $650.
For savings incentive match plan for employees (SIMPLE) IRAs:
- The contribution limit on SIMPLE IRA retirement accounts increases from $13,500 for 2021 to $14,000 for 2022.
- The SIMPLE catch-up limit remains unchanged at $3,000 for 2022.
For defined benefit plans:
- The basic limitation on the annual benefits under a defined benefit plan increases from $230,000 for 2021 to $245,000 for 2022.
- The threshold for determining “highly compensated employees” increases from $130,000 for 2021 to $135, 000 for 2022.
- The threshold for officers who are “key employees” in a top-heavy plan increases from $185,000 for 2021 to $200,000 for 2022.
- In a separate announcement, the Social Security Administration stated that the 2022 taxable wage base will increase to$147,000, an increase of $4,200 from the 2021 taxable wage base of $142,800. Thus, the maximum Social Security tax liability will increase for both employees and employers.
The IRS announcement is needed information for employers that sponsor 401(k) plans and other types of retirement and savings plans. For those interested in health and welfare plans, the IRS will release a separate announcement on the 2022 benefit limits for health flexible spending accounts (HFSAs) and transit benefit programs which we’ll cover separately on this blog.
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