How to Save More in 2022 With a 401(k)

Author: Siân Killingsworth / 10 Feb 2022 / Business

Small business employers and employees with a 401(k) plan can save more in 2022 in more ways than one:

• Higher limits: Increasing IRS limits will allow you to save more in 2022, so it’s worth looking into strategies that allow you to maximize your 401(k) investment.
• Smart saving strategies: You might cut back on spending or pick up a side gig to bring in more income, refinance your mortgage to take advantage of rock bottom interest rates, or put bonuses and tax refunds into your retirement savings account.
• Reduced tax burden: Even when times are tough, knowing how to take full advantage of a 401(k) opportunity can build significant wealth over time while also lowering your tax bracket for the year.

A small business 401(k) is the ideal way to generate considerable wealth for retirement using investment returns and compounding interest. The wise use of pre-tax dollars can ease your 2022 income tax burden as well.

How to save more for retirement with a 401(k) in 2022

From 2021 IRS 401(k) savings limit have increased $1,000 in 2022 to $20,500. The 2021 401(k) catch-up contribution for those age 50 and over will remain the same in 2022, letting those who qualify add another $6,500 in savings. It’s important to note that 401(k) plan contributions can be made with pre-tax dollars, so the more you contribute, the less you’ll be taxed on this year. Even $1,000 contributed can be enough to lower your tax bracket and the percentage of your income paid to the IRS.

Employers have the option to add a discretionary contribution of up to $40,500 to an employee’s account. Also, if you are a small business owner with a Solo 401(k), you’re able to contribute to your plan as both employee and employer – to a maximum amount of $61,000 in 2022. Your spouse may join the plan, potentially bringing your household maximum to $122,000. The $6,500 catch up contribution (for individuals age 50 or older) is allowed in addition to these maximum limits.

Surprisingly, IRA limits aren’t changing in 2022 – they’re still $6,000 or $7,000 if you’re age 50 or older – so using a 401(k) savings vehicle is wise if you’re hoping to combat this year’s inflation spike.

How much should I set aside to max out my 401(k) in 2022?

Investors under age 50 who are on a biweekly pay schedule will need to save $788 per check to reach the $20,500 retirement plan contribution limit in 2022. Those over 50 looking to capitalize on the catch up bonus will need to save $1,038.

What strategies do people use to max out a 401(k)?

There are numerous strategies to help you save more for retirement in 2022, such as:

• Saving your entire annual raise to put into your account.
• Putting tax refunds, profit shares, and bonuses into savings.
• Using birthday or holiday cash and inheritance money to maximize a 401(k).
• Taking smaller budget trips rather than large vacations.
• Cutting back on spending in small ways – like eating out one time less per week.
• Canceling unnecessary or unused membership subscriptions.
• Refinancing the mortgage to lower housing costs and putting the difference into the 401(k).

How can I change my 401(k) deferral elections in 2022?

Employees may contact their Human Resources Department at any time to change a 401(k) deferral election. The employer will then contact their 401(k) plan provider to make the changes. As a provider and administrator, Ubiquity offers 401(k) plans geared toward small businesses. Contact us to learn more about maximizing your 401(k) savings this year.