When your employees maximize their retirement contributions they
pay themselves first (Win!),
lessen their annual tax burden (Win!)
and build, grow and protect their retirement savings – the best WIN of all!
While most of us don’t consider the IRS to be a benevolent organization, in some ways they are. The IRS is pretty generous when it comes to how much we can contribute to tax-deferred retirement plans, so generous that most of us don’t even come close to maximizing what is allowed.
If you are an employer in the public sector (which includes state, municipal and county, public school, Firefighters, Police, hospital), or non-profit sector that qualifies as 501(c)(3), you most likely offer a retirement plan known as a 403(b) Tax-Sheltered Annuity Plan (TSA) or a 457(b) TSA and, in some cases, both.
For 2022, if you offer both plans, a 403(b) and a 457(b), and have employees who turned 50 at the end of the 2021 calendar year, they can put away $54,000 that Uncle Sam will allow to grow tax-deferred. They can also tack on an additional $7,000 for a Traditional IRA for a total of $61,000, and even more if they qualify for other catch-up provisions. Do your employees know this?
How Much Salary Can You Defer if You’re Eligible for More than One Retirement Plan?
These are IRS provisions; your plan may have a provision in your Plan Document that sets different limits on contribution amounts.
Employees’ level of income can also determine how much money they can defer into these plans. Best to remind them to always check with a qualified tax expert to review options to make sure they comply with both the IRS and your Plan Document rules.
Here’s the breakdown for 2022 Elective deferrals.
The IRS talks for how much money can be put away in a variety of different employee retirement plans. Keep in mind, there are other tax-deferred plans available; employees should consult with a tax expert to review their options.
457(b) Plan
- Annually $20,500
- 50 or older at the end of the previous calendar year add $6,500
- Special 457(b) catch-up deferral called the “last 3-year catch-up” allows them to defer in the three years before they reach your plan’s normal retirement age twice the annual of $20,500 or the annual limit, plus any amount from prior years that they did not contribute
- If they have both the “over 50” and “last 3-year” options, they can use whichever one gets them the larger deferral, but not both.
403(b) Plan
- Annually $20,500
- Age 50 catch up provision $6,500
- 15-years of service provision, better known as the “15-year rule” adds $3,000 per year for a lifetime maximum of $15,000. It must be 15 years of service with the same employer
- When both catch-up opportunities are available, the law requires deferrals exceeding the standard limit, $20,500 in 2022 to be first applied to the 15-year catch-up, and then to the age 50 catch-up.
For private-sector employees, the following are typical retirement plans that you can offer:
401(k) Plan
- Annually $20,500
- Age 50 catch up provision $6,500
401(k) and Profit-Sharing Plan Contribution Limits
For business owners, who can contribute as both employee and business owner, 401(k) limits for 2022 top out at $61,000 per year. Business owners aged 50 or older can also make a $6,500 catchup contribution.
SIMPLE IRA (Savings Incentive Match Plan for Employees) for any employer with fewer than 100 employees, including self-employed individuals, tax-exempt organizations, and government entities.
- Annually $14,000
- Age 50 provision $3,000
- Employer match is specific per employer, it can be dollar for dollar match from 1% to 3% of participating employee’s salary, or a non-elective contribution of 2% of the employee salary for every eligible employee.
SIMPLE IRA Contribution Limits
SEP Plans (Simplified Employee Pension) for a business of any size and self-employed individuals
Only Employer contributions are allowed, employees cannot make individual contributions. Employer contribution cannot exceed the lesser of:
- 25% of the employee’s compensation, or $61,000 for 2022
- No catch-up provisions
Traditional IRA (Individual Retirement Account)
- Annually $6,000
- Age 50 catch up provision $1,000
IRS announces changes to retirement plans for 2022
Take advantage of these resources to educate your employees.
TC125476(0222)1
