Here’s how much you can put into popular retirement accounts this year.
401(k) Contribution Limits
Perhaps the most popular retirement account is the 401(k) plan. Many employers that offer these work-sponsored plans will match a certain percentage of employee contributions. For example, an employer that matches up to 4% of contributions effectively allows an employee to save 8% of every paycheck for half of the out-of-pocket cost. Money is usually contributed to a 401(k) plan before taxes are deducted from your paycheck, so you’ll pay taxes years down the road when you withdraw that money. If you’re self-employed and your business has no common-law employees other than your spouse, you can set up an individual 401(k) for yourself, sometimes referred to as a solo 401(k). You have a choice of contributing either pre-tax dollars (traditional) or after-tax dollars (Roth) to a solo 401(k).
IRA Contribution Limits
There are four main types of Individual Retirement Accounts (IRAs): traditional IRA, Roth IRA, SIMPLE IRA, and SEP-IRA, . For example (using 2022 limits):
If Sally, 25, contributed $6,000 to her Roth IRA, she is not allowed to contribute anything to her traditional IRA in that same year.John, 57, could contribute $2,500 to his Roth IRA and $4,500 to his traditional IRA.Benny, 44, could contribute $5,999 to his Roth IRA and $1 to his traditional IRA.
IRA contributions are tax deductible up to the contribution limits for most taxpayers, unless the taxpayer is covered by a workplace retirement plan. If the taxpayer (or their spouse) is covered, deductions begin to phase out at certain incomes until they are phased out altogether, depending on filing status: SIMPLE IRAs are designed for small businesses with 100 or fewer employees. SIMPLE stands for “savings incentive match plan for employees” and contributions are made with pre-tax dollars. The contribution limit for 2022 is $14,000; this increases to $15,500 in 2023. Savers 50 or older can contribute up to an additional $3,000 in 2022 and $3,500 in 2023.
