IRS Announces New COLA Directive, Increases in 401 (k) Income Limit and IRA
The Internal Revenue Service recently announced that the amount individuals can contribute to their 401 (k) in 2022 has officially increased to $ 20,500. It’s a $ 1,000 increase for 2021 and 2020.
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The IRS has also issued guidance regarding all cost of living (COLA) adjustments affecting dollar limits for pension plans and other retirement-related items for 2022. These limits are to be increased annually for take the COLA into account. Other limitations applicable to deferred compensation plans are also affected by these adjustments.
In addition to soaring inflation and COLA increases, the income brackets for determining eligibility to make deductible IRA and Roth IRA contributions and claim the savings credit have all increased for 2022.
As a taxpayer, you can deduct contributions to a Traditional IRA under certain conditions. For example, if you or your spouse were covered by a workplace pension plan during the year, the deduction may be reduced or waived until eliminated (depending on filing status and income) .
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Here are the IRS phase-out ranges for 2022:
For single taxpayers covered by a workplace pension plan, the elimination range is increased from $ 68,000 to $ 78,000 (from $ 66,000 to $ 76,000)
For married couples filing jointly, if the IRA contributing spouse is covered by a workplace retirement plan, the elimination range is increased from $ 109,000 to $ 129,000 (instead of $ 105,000 at $ 125,000)
For an IRA contributor who is not covered by a workplace retirement plan and who is married to a covered person, the elimination range is increased from $ 204,000 to $ 214,000 (from 198,000 $ to $ 208,000)
For a married person who files a separate return and is covered by a workplace pension plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains at $ 0 to $ 10. $ 000.
Phasing out of income forks for contributors at Roth IRA has also increased. The new ranges are $ 129,000 to $ 144,000 for single filers and heads of households and $ 204,000 to $ 214,000 for married couples filing jointly. Those who are married and file a separate return from their spouse are not subject to a COLA and remain $ 0 to $ 10,000.
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This article originally appeared on GOBankingRates.com: Retirement 2022: IRS announces new COLA guideline, 401 (k) income limit increases and IRA