What Is the Change to the Maximum 401(k) Contribution for 2022 for 50 and Older?
Turning 50 in 2022 is more than just another milestone birthday if you participate in a 401(k) plan. Participants who are 49 and younger may save $20,500, but those over 50 are allowed an additional catch up contribution of $6,500. Those turning 50 (or older) can put a maximum of $27,000 into their 401(k) plans in 2022.
When can a person turning 50 in 2022 start contributing an extra $6,500 for retirement?
If you were born in 1972, you’ll be able to start setting aside extra money in your retirement savings account starting on January 1, 2022. This catch up contribution is designed to help people nearing retirement age rapidly increase their nest eggs, even if they didn’t save as much when they were younger.
The ability to save an extra $6,500 can also help lower a 401(k) plan participant’s taxable income for the year if contributing pre-tax, potentially taking them to a lower tax bracket and percentage of their income that’s due.
Why didn’t the 401(k) catch up contribution increase in 2022?
The catch-up contribution limit changes to keep up with rising inflation (as does the regular 401(k) contribution), though it doesn’t necessarily change annually.
- When the catch up contribution was first announced in 2002, the limit was $1,000
- Every year from 2002-2006, the allowance increased by $1,000
- From 2006-2008, the limit remained $5,000
- From 2009-2014, the limit increased to $5,500 and remained that way
- From 2015-2019, the limit increased to $6,000
- In 2020, the limit increased to $6,500
When will the 401(k) catch up contributions increase?
Based on recent trends, we can expect the limit to increase to $7,000 in 2026. However, in the summer of 2021, Congress members in the Senate and House proposed a bill (SECURE 2.0) that would expand catch up contributions further for workers in their 60s.
The House bill would allow a catch up of $10,000 for anyone aged 62, 63, or 64. This contribution would apply as a Roth contribution – meaning that it would be taxed as regular income the year in which it was deposited, but there would be no taxes owed upon withdrawal. The Senate bill would allow $10,000 catch up contributions for anyone over 60, but the pre tax treatment would remain the same.
There is no telling when or if SECURE 2.0 will pass, but the changes could make a big difference for people needing to bolster their savings as they near retirement.
What is the 2022 catch up contribution for SIMPLE 401(k)s?
A SIMPLE 401(k) or IRA plan permits a $3,000 catch up contribution in 2022, which has stayed the same since 2015. Contributions are considered “catch up” after the annual contribution reaches $14,000.
Should you take advantage of the catch up contribution in 2022?
Absolutely. If you can find strategies to save more of your income for retirement, this catch up contribution is an an excellent opportunity to reduce taxable income and increase retirement savings
For easy, low-cost, flat-fee 401(k)s for small business, get in touch with Ubiquity today! As your plan provider, we are here to answer any questions you may have on topics ranging from the 401(k) contribution limits for high earners, to the potential benefits of adding a Safe Harbor provision. We will give you all the information and guidance you need to maximize your retirement savings. Contact us today to get started!
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