2022 IRS 401(k) Limits

Author: Siân Killingsworth / 10 Feb 2022 / Business

Whether you are a small business owner offering a 401(k) to your employees or you’re contributing to a retirement savings account for yourself, the Internal Revenue Service 401(k) contribution limits for 2022 can help guide your money management for the year.

Unlike a regular savings account, money put into a traditional 401(k), IRA, or HSA can reduce the saver’s taxable income for the year and lowers their tax bracket. The investment will generate much larger returns (11% over five years, on average) and will earn interest on the interest, too.

Current 401(k) distribution rules give you the option to wait until you turn 72 to take a Required Minimum Distribution, so 401(k)s can be a great way to build up inheritance as well as fund a comfortable retirement lifestyle.

401(k) Contribution Deadline for 2022

• Employee 401(k) contributions for 2022 are made with each payroll up until December 31, 2022
• Any Roth or catch up contributions must also be made by December 31, 2022
• Solo 401(k) owners can make regular or one-time contributions on any day up until April 17, 2023 (since April 15, 2023 falls on a Saturday)
• Corporations also have until April 17, 2023, to make employer contributions for the 2022 calendar year, unless they go on extension
• S Corporations and Partnerships must fund employer contributions by March 15, 2023 unless they go on extension

For business owners interested in starting a new 401(k) plan in 2022, the recently-passed SECURE Act allows more time to create and contribute up to the expanded 401(k) contribution deadline. S-corps and partnerships must draw up new 2022 plans by March 15, 2023. The extended deadline is September 15, 2023.

C-corps and sole proprietorships have until April 15, 2023. If the business files for a tax extension, they could have until as late as October 15, 2023, to make contributions for the 2022 calendar year.

One exception is if you are considering a Safe Harbor 401(k); the IRS stipulates the first plan year must be at least three months to allow employees sufficient time to defer, so this provision must be added no later than October 1, 2022, to be effective for the 2022 calendar year.

What Are the 2022 401(k) Limits for Individual Contributions?

Given the 5.9% inflation we saw in 2021, the IRS increased individual contribution limits by $1,000 to:

• $20,500 (Age 49 & under by 12/31/22)
• $27,000 (Age 50 & over by 12/31/22)

These same contribution limits apply to 403(b) tax-sheltered annuities for public school employees.

2022 Solo 401(k) Limits and Maximum Employer/Employee Contributions

Most 401(k) plans include employer matching to a set formula or nonelective contributions up to:

• $61,000 for those 49 & under by 12/31/22 (+$3,000 from 2021)
• $67,500 for those 50 & over by 12/31/22

This means that if an individual contributes the maximum $20,500 this year, an employer could increase the total contribution another $40,500. Self-employed entrepreneurs may contribute as both “employer” and “employee” up to the $61,000 or $67,500 maximums likewise.

The employee compensation limit used in the savings calculation increased by $15,000 to $305,000 in 2022. A spouse may contribute to a Solo 401(k) plan, effectively doubling the household’s tax-free savings and retirement earnings.

SIMPLE 401(k) Limits for 2022

A SIMPLE 401(k) geared toward businesses with 100 or fewer employees allows the following 2022 maximum:

• $14,000 (for those 49 & under, a $500 increase from 2021)
• $17,000 (for those age 50 & older, with an unchanged $3,000 catch up contribution allowed)

2022 Highly Compensated Employee and Key Employee Definitions and Limits

Employers with Traditional 401(k) plans will need to know who to consider a “Highly Compensated Employee” or “Key Employee.”

• $135,000 is the income threshold for a “Highly Compensated Employee,” an increase of $5,000 from 2021
• $200,000 is the income threshold for a “Key Employee,” an increase of $15,000 from 2021
• $305,000 is the annual compensation limit, up $15,000 from 2021

If you are worried about passing nondiscrimination tests every year, you may consider adding a Safe Harbor provision, which removes most of these rules, audits and tests and replaces with deferral and match non-discrimination testing and potentially, Top-Heavy requirements. The 401(k) withdrawal rules generally remain the same as with a traditional plan.

2022 Limits on IRAs

Some Americans also have IRAs to maximize their retirement savings. Limits for 2022 are:

• $6,000 for those 49 & under with Roth or Traditional IRAs (unchanged from 2021)
• $7,000 for those 50 & over with Roth or Traditional IRAs (unchanged from 2021)

Modified Adjusted Gross Income limits apply to IRA holders:

• For full deductibility of Traditional IRAs, filing single, in 2022: $78,000 (increased $2K since 2021)
• For full deductibility of Traditional IRAs, filing joint, in 2022: $129,000 (increased $4K since 2021)
• Full Traditional IRA deduction with a non-working spouse in 2022: $214,000 (increased $6K over 2021)
• If neither participant or spouse is enrolled in a workplace plan: there is no income limit for deductions
• For partial Roth IRA deductibility, filing single, in 2022: $129,000-144,000 (increased $4K since 2021)
• For partial Roth IRA deductibility, filing joint, in 2022: $204,000-$214,000 (increased $6K since 2021)
• You cannot contribute to a 2022 Roth IRA if your individual income is above $144,000
• You cannot contribute to a 2022 Roth IRA if your joint income is above $214,000

2022 Limits on HSAs

Health Savings Accounts are another great option for employees to set aside money that reduces taxable income, up to:

• $3,650 for individuals with Health Savings Accounts (+$50 from 2021)
• $7,300 for families with Health Savings Accounts (+$100 from 2021)
• Additional $1,000 for those age 55+ with Health Savings Accounts (unchanged from 2021)

Start Your Own Easy, Low-Cost 401(k) with Ubiquity

Ubiquity is a small business 401(k) plan provider offering full administrative support for employers and employees. Since 1999, we have operated on a low, flat monthly fee model that lets you grow your business without incurring greater 401(k) expenses.

Contact us to learn about starting a new 401(k), switching to a different type of plan, adding a Safe Harbor provision onto an existing plan, for information on 401(k) withdrawal rules, or to learn how you can maximize your contributions in 2022.