The IRS recently announced 2022 retirement plan contribution and gift tax limits. These included some limits that will be increasing and some that will be remaining the same as the 2021 limits. See the changes in retirement plan and gift tax limits below.
Retirement Plan Highlights
The following limits are increasing for 2022:
- Maximum contributions for 401(k), 403(b) and eligible 457(b) plans increases to $20,500
- The annual addition limit for defined contribution plans increases to $61,000
- The annual compensation limit increases to $305,000
The following limits will remain the same for 2022:
- The catch-up contribution limits for 401(k) plans remains at $6,500
- The IRA contribution limit remains at $6,000
- The IRA catch-up remains at $1,000
Why this matters
Increased retirement plan contribution limits are an opportunity to maximize your retirement savings. Your financial advisor can show you how increasing your annual contribution will impact your retirement savings over the next 5, 10, 15, 20 years, or more! We can also help you decide if contributing to a Roth or a traditional retirement plan is better for your unique financial situation.
Gift Tax Highlights
- The annual gift tax exclusion is increased to $16,000 per recipient for 2022 (up from $15,000 in 2021). The limit for married couples will be $32,000 for 2022.
- The lifetime gift tax exemption is increased to $12.06 million per individual (up from $11.7 million in 2021). The limit for married couples will be $24.12 million for 2022.
Why this matters
The annual gift tax exclusion has been $15,000 for four years. The Internal Revenue Service has increased this limit to $16,000 due to inflation. The new limit allows you to transfer more money to your heirs tax-free; however, if you make gifts over the annual gift tax exclusion, you will have to file a gift tax return the following year.
It is also important to note that the lifetime gift tax exemption is set to be cut in half at the start of 2026. In an earlier version of the Build Back Better Act, a provision was included that would have cut the lifetime exemption in 2023, however, it was dropped from the legislation in November. It is not currently clear whether that provision will be back in the final version of the plan. Because of this, we are encouraging clients who are interested in using the higher lifetime gift tax exemption to talk to their financial advisor to plan their gifts before changes to the law are implemented.
We’re All In
If you have any questions or would like to discuss your retirement savings, Roth conversions, gifting plans, the tax impact of these changes, or anything else, please do not hesitate to reach out to your financial advisor or leave us a comment below.
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