Contributing the maximum amount to your retirement plan can efficiently improve retirement savings and, perhaps, minimize taxes. With the end of the year and the 401(k) contribution deadline quickly approaching, here are some tips to assist you in taking advantage of tax incentives connected with your retirement savings plan, including contributing the maximum to your 401(k).
What is the Last Day to Make a 401(k) Contribution in 2022?
The contribution deadline for employer-sponsored 401(k) plans in 2022 is December 31.
In 2022, the 401(k) contribution maximum is $20,500. People can make contributions of up to $6,500 over 50. For the 2022 tax year, your maximum 401(k) contribution would be $27,000.
Contribution deadlines and restrictions for 401(k)s also apply to Roth 401(k)s and 403(b) retirement plans. The contribution limitations for 457 plans in 2022 are comparable, but there are catch-up contributions if you are approaching retirement age.
Can I Make 401(k) Contributions After the Year Ends?
Whether you may contribute to your retirement savings plan after December 31 is a frequently asked issue. Since 401(k) contributions are made through payroll deductions, the answer is that the deadline is December 31.
If you have an IRA, you can make contributions until the filing date for the 2022 tax year, which is April 18, 2023. The IRA contribution limit is $6,000; if you are 50 or older, the $1,000 catch-up contribution brings the total maximum contribution to $7,000.
How Much Can an Employer Invest in an Individual 401(k)?
As an employee contributing to a single 401(k), you can contribute up to $20,500 in 2022. If you are 50 or older, you may contribute up to $27,000 to a single 401(k).
The IRS limits non-elective employer contributions to a single 401(k) to 25 percent of income. If you are self-employed in 2022, your total contributions cannot exceed your earned income.
In addition, the total contribution ceiling for 2022 is $61,000. Consequently, cumulative contributions to a participant’s account (excluding catch-up payments for those 50 and older) cannot exceed this limit.
What is the RMD amount for 2022?
A required minimum distribution is a minimal amount you must withdraw annually from your retirement account if you are at least 72 years old. Remember that your RMDs are normally due by December 31 (although there are exceptions) and that RMDs are not required for a Roth IRA, except for certain circumstances involving the account owner’s death.
How are RMDs determined?
Calculating your RMDs depends on your age in the distribution year and the value of your retirement account. Remember that RMDs are taxed as regular income and might thus affect your federal tax rate.
Who is Eligible to Receive the Saver’s Credit?
If you earn less than a certain amount, you may qualify for the saver’s credit, a tax benefit designed to encourage people with low and moderate incomes to save for retirement. If your modified adjusted gross income for 2022 is less than $34,000, you may be eligible for the up to $1,000 saver’s credit. To claim the maximum $2,000 saver’s credit as a married couple filing jointly, you must have an adjusted gross income equal to or below $68,000.
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 (joint filers) contributed to a 401(k), IRA, or Roth IRA. However, rollover contributions will not be used in the credit computation.
Contribution Deadline for Your 401(k) in 2022: What You Can Do
Do not wait until the year-end 401(k) contribution deadline to review your retirement assets. Instead, check your retirement account to determine if you’re on pace to make the maximum 401(k) contribution by December 31.