Updated 401K, IRA Contribution Limits For 2021 vs 2022 Estimated Changes

The IRS has released its latest cost of living adjusted retirement plan contribution limits and qualifying income thresholds for 2021. The table below shows the recent year over year changes.

I have also listed expected 2022 changes based on my research and recent inflation figures (which also resulted in a 5.9% COLA increase). As expected 2022 thresholds to rise more than prior years due to rising inflation.

IRAs (Including Roth)2022 (est)202120202019
IRA Contribution Limit $6,000 $6,000$6,000$6,000
IRA Catch-Up Contributions $1,000 $1,000 $1,000 $1,000
Traditional IRA AGI Deduction Phase-out Starting at2022202120202019
Joint Return$109,000$105,000$104,000$103,000
Single or Head of Household$68,000$66,000$65,000$64,000
SEP2022202120202019
SEP Minimum Compensation$700$650$600$600
SEP Maximum Contribution$61,000$58,000$57,000$56,000
SEP Maximum Compensation$300,000$290,000$285,000$280,000
SIMPLE Plans2022202120202019
SIMPLE Maximum Contributions$14,00013,50013,50013,000
Catch-up Contributions$3,0003,0003,0003,000
401(k) and 403(b)202120202019
Annual Compensation$295,000290,000285,000280,000
Elective Deferrals$20,00019,50019,50019,000
Catch-up Contributions$7,0006,5006,5006,000
Defined Contribution Limits$60,00058,00057,00056,000
Other2022202120202019
HCE Threshold$135,000130,000130,000125,000
Defined Benefit Limits$235,000230,000230,000225,000
Key Employee$190,000185,000185,000180,000
457 Elective Deferrals$20,00019,50019,50019,000
Control Employee (board member or officer)$120,000115,000115,000110,000
Control Employee (compensation-based)$240,000235,000230,000225,000
Taxable Wage Base$147,000142,800137,700132,90
Source : IRS and Others for 2022 estimates

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[2018 update] 401K and 403b limits have held steady or moderately increased over the last few years with more and more Americans using these tax advantaged employer sponsored vehicles to save for their retirement income.

However this bastion of American retirement savings is under attack from Trump and GOP tax reform proposals. Basically to fund proposed tax cuts the Republican tax plan is looking at limiting the amount of pretax money households can contribute to 401K (or 403b for government employee) retirement saving accounts. By limiting these pre-tax contributions, the government can collect additional tax on these earnings. Thereby providing additional revenue to offset the losses from tax cuts.

GOP insiders have said they would offset the 401k contribution limit cuts by allowing increased limits for Roth 401K or Roth IRA accounts where contributions are after tax, but growth and withdrawals are tax free. So what the GOP proposal is essentially doing is shifting e tax revenue from the future to the near term. Longer term the deficit will only grow.

Based on various sources the 401k contribution cuts could be massive – from the current $18,000 ($18,500 in 2018) per year to $2,400 a year. This would hit middle income earners the most for whom an employee sponsored 401k vehicle is their main form of retirement saving.

The has become a big issue for large (and powerful) fund management companies on Wall street and their lobbyists. 401k and IRA Fund management companies like Vanguard and Fidelity have become so large and dominant due in large part to the growth of retirement savings accounts where they manage the lion’s share of employer plans. So it is unlikely they will want a change in the rules. And given their influence I would not be surprised if this proposal is quashed in Trump’s tax reform package.

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2 thoughts on “Updated 401K, IRA Contribution Limits For 2021 vs 2022 Estimated Changes”

  1. The Republican proposal to reduce the 403b contribution limit will hobble my retirement savings plans. Now I have to choose between paying more taxes today and saving for retirement. I don’t think the Republicans have left anybody out of their game called, “LETS TERRIFY EVERYBODY.” Retirement savers are certainly not being spared any worry or fear. Now, Republicans want to raise the debt limit and give about a 5% tax decrease to the mega wealthy, while raising taxes on select middle to upper middle class people. Quite frankly, I’m scared, real scared. I hope the favored tax status of SEP IRA’s lose their tax deferred status too.

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  2. Well…looks like this proposal may already be dead in the water…

    “President Donald Trump pledged Monday to protect a popular retirement-savings program, promising to leave it untouched in the forthcoming GOP plan to overhaul taxes. “There will be NO change to your 401(k),” the president wrote on Twitter. “This has always been a great and popular middle class tax break that works, and it stays!”

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