The 401(k) plan is a retirement savings plan offered by many US employers that has tax benefits for the saver. It is named after part of the US Internal Revenue Code and will be amended in 2022.
This is related to inflation and the COLA increase for 2022. The Consumer price index rose 0.9 percent in October after rising 0.4 percent in September, the U.S. Bureau of Labor Statistics reported. In the past 12 months, the index has risen 6.2 percent before seasonal adjustment, the highest inflation rate in the country since 1990. This, in turn, has led the Social Security Administration to announce a 5.9 percent increase in the cost of living (COLA) for 2022.
These changes mean: employees are allowed to put more money into their pension plans, because the money they have saved may not be enough at high levels of inflation.
What will 401(k) change in 2022?
The IRS announced the changes in early November. The employee contribution limit for 401(k) plans will increase to $20,500 in 2022, up $19,500, and catch-up deposits for savers 50 and older will still be $6,500.
This change also applies to people using the 403(b), most 457 plans, and the federal government’s Thrift Savings Plan.
If you have a 401(k), remember that those savings are tax-free and not tax-free. But you can avoid higher taxes in retirement by transferring your accounts to Roth accounts. https://t.co/gLHV9oaTJI
— MarketWatch (@MarketWatch) Nov 13, 2021
The cap on annual contributions to an individual retirement plan (IRA) remains unchanged at $6,000. The IRA catch-up contribution limit for individuals 50 and older is not subject to an annual cost-of-living adjustment and remains $1,000.
Although many have a savings deficit, only 8.5% of employees made the most of the company’s pension plans in 2018, according to a report from the Congressional Research Service. However, the three federal incentive schemes allowed more people to keep money, so the increased cap on pension funds could be a good place for people to store their money.
Do I want an Individual Retirement Account (IRA) or 401(k)? What about a traditional or Roth IRA? We answer your burning questions about pension investing.https://t.co/C6e4MOILC0
— MarketWatch (@MarketWatch) Nov 16, 2021
How will Social Security benefits change next year?
The 5.9 percent COLA increase means the monthly average increase for all retired workers will increase by $92 in 2022, going from $1,565 to $1,657. This is more than four times the increase for 2021, when the increase was just $20. The maximum monthly payment amount in 2022 for those who have reached full retirement age increases by $197, increasing to $3,345 from $3,148 in 2021.
The Federal Standard Payments for Supplemental Support Income (SSI) will rise to $841 per month for individuals, an increase of $47. For couples, they can receive an additional $70 per month for a total of $1,261 in 2022.