Changes in 401(k) & How You Benefit
Updated: Apr 11, 2022
401(k) is a retirement plan that is offered to an employee by their employer. A 401k plan gives employees a tax break on the money they contribute. These contributions are automatically withdrawn from employees’ paychecks and invested in funds of the employee's choosing. This holds importance in 2022 because the contribution limits for the 401(k) plan have been officially increased by the IRS.
If you’re an employee, looking to benefit from your 401(k), this would be the year to do it. For example, an employee looking to capitalize from this can now contribute up to $20,500, which is a $1000 increase from 2021. Workers above the age of 50 are given a catch-up 401(k) contribution of $6,500. Employees are experiencing a great opportunity to ensure they can make profits from their 401(k). The contributions made to a 401(k) occur before taxes, which means an employee doesn’t have to pay income tax on the money that’s put into a 401(k). In addition, this can benefit the employee further. For example, this notion of not paying taxes on the 401(k) lowers an employee’s overall taxes and even helps them qualify for benefits they didn’t before.
401(k) Limits: | 2021 | 2022 |
Employee Contribution Limit | $19,500 | $20,500 |
Annual Limit Per Individual | $61,000 | $58,000 |
Age 50+ catch-up amount | $6,500 | $6,500 |
Annual Compensation Limit | $305,000 | $290,000 |
Highly Compensated Employees | $135,000 | $130,000 |
If a company can offer and contribute to your 401(k), this is something to capitalize on. In most company scenarios, an employer would be willing to match whatever the amount is that an employee contributed. This is the difference between someone planning for their future and not, this is a way a company can provide the opportunity for a million-dollar retirement plan.
Regarding IRA’s (individual retirement account), these contributions remain the same according to the IRS. Although, income levels that are being used to or to receive traditional tax benefits are increased. An employee can earn or get to keep more through the deductions in their individual retirement account. As an employee, investing in your 401(k) can dramatically affect your future financial assessments.