The Internal Revenue Service (IRS) announced new changes in retirement plans.
Several ARPA provisions affect the 2020 tax return people are filing in 2021, including exempting up to $10,200 in unemployment compensation from tax and another benefiting people who purchased subsidized health coverage through federal or state Health Insurance Marketplaces.
Read more: IRS Will Begin Taxing Businesses for Payment App Transactions From Next Year
The law also includes the third round of Economic Impact Payments, now going out to eligible Americans, that are generally equal to $1,400 per person for most people and advance payments of the Child Tax Credit, paid monthly from July to December 2021. Keep up with tax law developments by regularly checking IRS.gov.
Next year taxpayers can put an extra $1,000 into their 401(k) plans. The IRS recently announced that the 2022 contribution limit for 401(k) plans will increase to $20,500.
The agency also announced cost‑of‑living adjustments that may affect pension plan and other retirement-related savings next year.
Read more: Unemployment Benefits: IRS Sends Out $430,000 Additional Tax Refunds
The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased to $20,500. Limits on contributions to traditional and Roth IRAs remains unchanged at $6,000.
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If neither the taxpayer nor their spouse is covered by a retirement plan at work, their full contribution to a traditional IRA is deductible.
If the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced or phased out until it is eliminated. The amount of the deduction depends on the taxpayer’s filing status and their income.
Read more: IRS Announces Increase in 401(K) and Ira Income Limit
Traditional IRA income phase-out ranges for 2022 are:
- $68,000 to $78,000 – Single taxpayers covered by a workplace retirement plan
- $109,000 to $129,000 – Married couples filing jointly. This applies when the spouse making the IRA contribution is covered by a workplace retirement plan.
- $204,000 to $214,000 – A taxpayer not covered by a workplace retirement plan married to someone who’s covered.
- $0 to $10,000 – Married filing a separate return. This applies to taxpayers covered by a workplace retirement plan
Read more: Surprise Stimulus: Here’s How IRS Can Send You Unemployment Benefits in November?
Roth IRA contributions income phase-out ranges for 2022 are:
- $129,000 to $144,000 – Single taxpayers and heads of household
- $204,000 to $214,000- Married, filing jointly
- $0 to $10,000 – Married, filing separately
Saver’s Credit income phase-out ranges for 2022 are:
- $41,000 to $68,000 – Married, filing jointly.
- $30,750 to $51,000 – Head of household.
- $20,500 to $34,000 – Singles and married individuals filing separately.
The amount individuals can contribute to simple retirement accounts also increases to $14,000 in 2022.
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