Saving for retirement is one of the most crucial financial tasks on your to-do list. You'll need money invested to produce income to supplement Social Security, and the more you can save each year of your career, the better off you'll be.
That's why this good news about retirement savings accounts in 2022 should excite you.
Two pieces of great news for retirement savers
There's good news for retirement savers about both 401(k) and IRA accounts.
Here's how 401(k)s are changing next year
For those who have a workplace 401(k), contribution limits are going up in 2022. In 2022, workers can invest a maximum of $20,500, up from $19,500. Catch-up contributions, which are available to workers ages 50 and up, will remain the same at $6,500.
While a $1,000 bump in the contribution limit may not seem like a lot, the reality is that an extra $1,000 invested each year in your 401(k) could lead to a nest egg that's as much as $282,224 larger (depending on when you first begin contributing this extra amount to your savings.) For those maxing out their 401(k)s already, the opportunity to put this additional money into their account could make a huge difference in what they ultimately end up with.
Here's how IRAs are changing next year
Of course, not everyone has access to a workplace 401(k). But there's also some good news about IRAs to share.
While the contribution limit unfortunately isn't increasing for this type of account, the income limits for making deductible contributions to a traditional IRA are going up, as are the income limits for making any type of contribution to a Roth IRA.
Here's how these limits are changing for traditional IRAs:
- If you're a single tax filer covered by a workplace retirement plan, the eligibility limit for a full contribution is going up to $68,000 in 2022 from $66,000 in 2021. The phase-out limit is going up from $76,000 to $78,000.
- If you're a married joint filer and you are personally covered by a workplace retirement plan, the income limit for full eligibility is going up from $105,000 in 2021 to $109,000 in 2022 and the phase-out limit is increasing to $129,000 from $125,000.
- If you're a married joint filer whose spouse is covered by a workplace retirement plan even though you aren't, the income limit for full eligibility is increasing from $198,000 to $204,000 and the phase-out limit is going up to $208,000 from $198,000.
And for Roth IRAs, here are the changes:
- For single tax filers and heads-of-household, the income limit for full eligibility is going up to $129,000 from $125,000. The phase-out limit is increasing to $144,000 from $140,000.
- For married joint filers, the income limit is going up to $204,000 for full contributions, up from $198,000. And the phase-out limit is jumping from $208,000 in 2021 to $214,000 in 2022.
If you were previously unable to contribute to these accounts because your income was too high but you now fall within the range where you're eligible, you'll have an exciting new opportunity to save for your retirement years with help from Uncle Sam.
Keeping abreast of these exciting changes is important, as preparing for retirement requires taking advantage of all the tax breaks on offer so the government can help you build security in your later years.