What is the maximum 401k contribution for 2022 according to the IRS?
Workers will be able to send more money into their retirement savings in 2022 due to changes in the COLA, but Americans still face retirement insecurity.
The 401(k) plan is a retirement savings plan offered by many American employers that has tax advantages to the saver. It is named after a section of the US Internal Revenue Code, and it is facing changes in 2022.
This is tied up into inflation and the COLA increase for 2022. The Consumer Price Index increased 0.9 percent in October after rising 0.4 percent in September, the US Bureau of Labor Statistics reported. Over the last 12 months, the index increased 6.2 percent before seasonal adjustment, marking the highest rate of inflation in the country since 1990. This in turn has led to the Social Security Administration announcing a 5.9 percent cost-of-living adjustment (COLA) increase for 2022.
These changes mean workers will be allowed to submit more money into their retirement plans, as the money they have saved may not sufficient with high inflation levels.
What is changing about 401(k) in 2022?
The IRS announced the changes back at the start of November. The employee contribution limit for 401(k) plans is increasing to $20,500 in 2022, up from $19,500, and catch-up deposits for savers 50 and older will still be $6,500.
This change will also apply to people who use the 403(b), most 457 plans, and the federal government's Thrift Savings Plan.
The limit on annual contributions to an Individual Retirement Arrangements (IRA) remains unchanged at $6,000. The IRA catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
Although many have savings shortfalls, only 8.5% of workers maxed out company retirement plans in 2018, according to a report from the Congressional Research Service. However, the three federal stimulus checks led to more people being able to keep money saved, so the expanded ceiling for retirement funds could be a good place for people to store their money.
How are Social Security payments changing next year?
The 5.9 percent COLA increase means, the monthly average increase for all retired workers will jump by $92 in 2022, going from $1,565 to $1,657. This is over four times what the increase was for 2021, when the increase was only $20. The maximum monthly payment amount in 2022 for those that have reached full retirement age will rise $197, increasing to $3,345 from $3,148 in 2021.
The Supplemental Support Income (SSI) federal standard payments will increase to $841 per month for individuals, an increase of $47. For couples they could receive an additional $70 per month for a total of $1,261 in 2022.