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.

Oth­er items:

  • 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.

By Kath­leen A. Berg­er, CEBS

Orig­i­nal­ly post­ed on Min­er­al