Max. 401(k) contributions for 2022
If you want a sizable nest egg when you reach retirement age, you’re in luck.
According to new updates from the IRS, the 401(k) contribution limit for 2022 is higher than in previous years.
To learn more about this change and what it means for you, continue reading.
What is the Maximum Contribution to a 401(k) in 2022?
The IRS has recently announced that taxpayers under the age of 50 can now put an extra $1,000 into their 401(k) plans, raising the 2022 401(k) contribution limit from $19,500 to $20,500.
If you have multiple 401(k) accounts, your total contributions cannot exceed that $20,500 limit.
For workers over the age of 50 who are eligible for “catch-up” contributions, their 2022 401(k) contribution limit is $27,000.
The $6,000 contribution limit for traditional and Roth IRAs remains unchanged at $6,000. Any contributions to an IRA don’t impact your 401(k) limit.
How Does This Impact Your Financial Goals?
According to the majority of experts, you should save at least 15% of their income for retirement. This includes any matching contributions that workers receive from their employers. So if your employer matches up to 6%, you should contribute 9% of your income.
However, there are some significant advantages to contributing as much to that $20,500 401(k) contribution limit as you can. Here are three of them.
You can lower your taxable income.
Because your total contribution to a 401(k) plan is deducted from your taxable income, you pay fewer taxes the more money you put in. This can generate some pretty incredible savings, especially if you’re on the borderline between two tax brackets.
You can meet your financial goals earlier.
Obviously the faster you put money into your 401(k), the faster you can reach that end amount. That puts you that much closer to your goals.
More money = more compounding interest.
It’s a basic rule of compound interest: the more money you have in your 401(k), the more interest you’re going to generate. As a result, it’s important to max out your retirement accounts as soon as it’s financially feasible. That way, you can increase the size of the account and your potential earnings in retirement.
Claim your entire employer match.
Your employer match is exactly that: a match. So if you want to get that money, you have to put money into your 401(k). While few employers actually match up to $20,500, it’s a good reason to invest as much in your retirement accounts as you can manage.
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