In October, the IRS issued the maximum benefit and contribution limits for 2022. The good news is that most of the dollar limits increased!

Elective Deferrals – 401(k) and 403(b) Plans$20,500$19,500
Catch-Up Contributions (over age 50)$6,500$6,500
Annual Contribution Limit – Defined Contribution Plans$61,000$58,000
Annual Covered Compensation Limit$305,000$290,000
Highly Compensated Threshold$135,000$130,000
SIMPLE Contribution Limits$14,000$13,500
SIMPLE Catch-Up Contributions (over age 50)$3,000$3,000
Top Heavy Plan Key Employee Compensation Limit$200,000$185,000
Social Security Taxable Wage Base$147,000$142,800

The Annual Covered Compensation Limit is the maximum compensation used when performing the annual compliance testing (non-discrimination testing, the General Test, etc.). The Annual Contribution Limit for Defined Contribution Plans has increased to $61,000. This dollar amount includes a participant’s elective deferrals and all employer contributions (match, safe harbor, and profit-sharing). It does not include the $6,500 Catch-Up Contribution so a participant who is over age 50 may be able to receive annual contributions of up to $67,500!

If you do not currently sponsor a qualified retirement plan or you recently adopted one, remember that start-up plans qualify for tax credits for the expense of the plan. Eligible employers may be able to claim a tax credit of up to $5,000, for three years, for the ordinary and necessary costs of starting a qualified plan. This tax credit reduces the amount of taxes you may owe on a dollar-for-dollar basis.

If you would like more information on the tax credits, sponsoring a qualified plan, or taking advantage of the new limits within an existing qualified plan, give us a call.

Posted in Tax

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