The IRS has made several changes to retirement account contribution limits for 2022. It’s important to understand the changes that have been made so you can adjust your retirement savings plan accordingly. You want to take advantage of all that your 401(k) has to offer. Keep reading to learn more about 401(k) contribution limits in 2022.
The new maximum contribution limit for people under the age of 50 is $20,500 for 2022. This is a $1,000 increase from the previous limit in 2021 of $19,500. If you are 50 years old or older, you have a $6,500 catch-up contribution, making your 401(k) contribution limit $27,000 for 2022. These contributions will need to be made before the end of the calendar year.
All of your contributions to your employer-sponsored 401(k) will be made with before-tax dollars (unless you have opted for Roth contributions), which lowers your taxable income to lower your tax bill. While your funds are growing in the 401(k) account, it is protected from taxes.
Most employers match a percentage of their employees’ salary to make a 401(k) contribution. On average, companies contribute 5.3% of an employee’s pay to their 401(k) account. Even if you cannot reach the maximum 401(k) contribution limit, you should aim to at least reach the matching amount of your employer. If you are not taking advantage of the match program, you are essentially throwing away free money.
It’s recommended for employees to save at least 15% of their income for retirement, which includes any employer match program. If you can’t afford to set aside 15% of your income for retirement, set a goal for yourself to reach that amount in the coming years and contribute as much as you can. Time is on your side when it comes to retirement savings; Your funds need enough time to compound interest.
If you are interested in learning more about 401(k)s and how they could benefit you and your retirement portfolio, contact us at Wolfe Financial. Our advisors will be able to sit down with you to decide how to make the most out of your 401(k). Retirement saving and planning can be complicated, so it’s helpful to have a knowledgeable team alongside you to assist you in navigating the path. Call us today to get started! Time is of the essence.
Sources:
https://www.kiplinger.com/retirement/retirement-plans/401ks/603949/401k-contribution-limits-for-2022
https://www.irs.gov/newsroom/irs-announces-changes-to-retirement-plans-for-2022
https://www.cnbc.com/select/401k-ira-contribution-limits-2022/