Maxing out your retirement plan contributions can be an effective way to boost savings for retirement and potentially reduce your taxes. With the end of the year fast approaching, along with the 401(k) contribution deadline, here are some reminders to help you take advantage of tax breaks associated with your retirement savings plan—including making your 2022 max 401(k) contributions.
What is the Last Day to Contribute to a 401(k) for 2022?
The deadline to make contributions for an employer-sponsored 401(k) plan for 2022 was December 31.
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2022 Max 401(k) Contributions
The 401(k) contribution limit for 2022 is $20,500. If you are 50 and older, you can contribute an additional $6,500 catch-up contribution. In that case, your total max 401(k) contribution for the 2022 tax year would be $27,000.
These 401(k) contribution deadlines and limits also apply to Roth 401(k) and to 403(b) retirement plans. The 2022 contribution limits for 457 plans are similar, but there are separate catch up contributions if you’re nearing retirement age.
Can I Contribute to a 401(k) After Year End?
A common question is whether you can contribute to your retirement savings plan after December 31. The answer is that because 401(k) contributions are made through payroll deductions, December 31 is the deadline.
However, if you have an IRA, you can contribute to that account up until the 2022 tax year filing deadline, which is April 18, 2023. The IRA contribution limit is $6,000 and the $1,000 catch-up contribution—if you are 50 or older—takes the total maximum contribution to $7,000.
How Much Can an Employer Contribute to a Solo 401(k)?
If you contribute to your solo 401(k) as an employee, you can contribute up to $20,500 for 2022. The total solo 401(k) contribution limit, if you’re 50 or older, is $27,000.
Nonelective contributions to a solo 401(k) made as an employer, are generally limited to 25% of compensation, according to the IRS. If you’re self-employed, your total contributions can’t exceed your earned income for the 2022 tax year.
There’s also an overall contribution limit of $61,000 for 2022. So, total contributions to a participant's account (not including catch-up contributions for those 50 and older), cannot exceed that amount.
How Much is the RMD for 2022?
A required minimum distribution is the minimum amount you must withdraw from your retirement savings account each year if you are at least 72 years old. Keep in mind that your RMDs generally must be taken by December 31 (although there are some exceptions) and RMDs aren’t required for a Roth IRA—with some exceptions involving death of the account owner.
How are RMDs calculated? RMDs are calculated by dividing the value of your retirement account by a distribution period based on your age, in the year in which you take the distribution. Remember: RMD’s are taxed as ordinary income and so can impact your federal income tax bracket.
Who Qualifies for the Saver’s Credit?
Depending on your income, you may qualify for the saver’s credit, which is a tax break designed to encourage lower-and middle-income taxpayers to save for retirement. For 2022, if your modified adjusted gross income is $34,000 or less, you may be eligible to claim the up to $1,000 saver’s credit. If you’re married filing jointly, your modified adjusted gross income must be $68,000 or less, to claim the up to $2,000 saver’s credit.
The saver’s credit is based on a percentage (i.e., 10%, 20% or 50%) of the first $2,000 (single filers) or $4,000 (married filing jointly) that you contribute to your 401(k), IRA, or Roth IRA retirement account. But rollover contributions won’t count toward the saver’s credit calculation.
What are the 401(k) Contribution Limits for 2023?
On October 21, the IRS announced significant inflation adjustments for the 2023 401(k) contribution limits, and the IRA contribution limit for 2023. The 401(k) contribution limits for 2023 increased to $22,500 and the IRA limit for 2023 increased to $6,500.
The 2023 401(k) contribution limit, which is $2,000 more than it was for 2022, applies to employees who participate in not just 401(k) plans, but also in most 457 plans, and the federal government Thrift Savings Plan. The catch-up contribution limit for those age 50 or older participating in those plans is 7,500 for 2023.
Will the IRA contribution limit increase for 2023? The IRA contribution limit for 2023 is also up, by $500, from 2022. So, for 2023, you can contribute up to $6,500. If you’re age 50 or older, the IRA catch up contribution limit is not adjusted for inflation, so it will stay at $1,000 for 2023.
401(k) Contribution Deadline 2022: What You Can Do
Don’t wait for the year-end 401(k) contribution deadline to sit down and evaluate your savings for retirement. Instead, check your retirement savings account now to see if you’re on track to make your max 401(k) contributions by December 31.
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