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Nov 18, 2021

2022 Cost-of-Living Adjustments: How Inflation Affects Your Retirement Contributions

Retirement savers worry about how inflation will affect their standard of living in retirement. Inflation year over year means today’s retirement nest egg won’t be worth as much as in the future. For example, $100,000 today might buy you only $75,000 worth of goods by the time you retire. Investors and financial advisors try to combat this loss of purchasing power by growing investments faster than inflation rates and investing in certain types of investments that can help protect against inflation, including gold and real estate. 

But there is another way you can hedge against inflation, and it is built into the U.S. tax-qualified retirement savings system. Each year, the limits on how much you may contribute to your retirement savings accounts may increase based on adjustments to the cost of living. If you increase your retirement saving contributions each year as well, you can help fight the effects of inflation by increasing your account balance.

For 2022, almost all the limits will be rising, except for the IRA contribution limit. However, the compensation thresholds for IRAs are increasing, so you may qualify to take a bigger tax deduction for a traditional IRA contribution or to contribute to a Roth IRA if you couldn’t in previous years based on the income restrictions.

Traditional and Roth IRAs

You are eligible to contribute to a traditional IRA as long as you (or your spouse) have earned income for the year to support your contribution. You are eligible to contribute to a Roth IRA if you (and your spouse) have earned income under a certain limit in effect for the year. You may contribute to both types of IRAs in the same year, as long as you don’t exceed the annual limit in aggregate.

Traditional & Roth IRA Contribution Limit 2022 2021
Maximum amount you may contribute to your IRAs for the year $6,000 $6,000
Maximum catch-up contribution if you’re age 50 or older $1,000 $1,000

Traditional IRA Deductions

If you contribute to a traditional IRA, you are eligible to take a tax deduction for your contribution if neither you nor your spouse participates in a retirement plan at work. If either of you do participate in a workplace retirement plan, your compensation must fall within specified limits to qualify for a deduction. These limits are increased slightly from 2021.

2022 Traditional IRA Deduction Eligibility If Participating in a Workplace Retirement Plan
Filing Status Modified Adjusted Gross Income Deduction Eligibility
Single or head of household
  • $78,000 or more
  • More than $68,000 but less than $78,000
  • $68,000 or less
  • Not deductible
  • Partially deductible
  • Fully deductible
Married filing jointly and IRA owner is a participant
  • $129,000 or more
  • More than $109,000 but less than $129,000
  • $109,000 or less
  • Not deductible
  • Partially deductible
  • Fully deductible
Married filing jointly and only Spouse is a participant
  • $214,000 or more
  • More than $204,000 but less than $214,000
  • $204,000 or less
  • Not deductible
  • Partially deductible
  • Fully deductible
Married filing separately
  • $10,000 or more
  • Less than $10,000
  • Not deductible
  • Partially deductible

Roth IRAs

Your adjusted gross income must fall within or below the applicable phase-out range to be eligible to contribute to a Roth IRA. These limits are increased slightly from 2021.

2022 Roth IRA Contribution Eligibility
Filing Status Modified Adjusted Gross Income Contribution Eligibility
Single or head of household
  • $144,000 or more
  • More than $129,000 but less than $144,000
  • $129,000 or less
  • Not eligible
  • Partial contribution
  • Full contribution
Married filing jointly
  • $214,000 or more
  • More than $204,000 but less than $214,000
  • $204,000 or less
  • Not eligible
  • Partial contribution
  • Full contribution
Married filing separately
  • $10,000 or more
  • Less than $10,000
  • Not eligible
  • Partial contribution

Employer-Based Retirement Plans

The COLAs also affect contribution and other limits for employer-based IRA plans and 401(k) plans.

SEP IRA Plan 2022 2021
Minimum you must earn to be eligible for an employer contribution $650 $650
Maximum employer SEP contribution = 25% of compensation up to … $61,000 $58,000
Maximum compensation considered for calculating employer contributions $305,000 $290,000
SIMPLE IRA Plan 2022 2021
Maximum amount you may put into a SIMPLE IRA as a salary deferral $14,000 $13,500
Maximum catch-up contribution if you’re age 50 or older $3,000 $3,000
Maximum compensation considered for calculating an employer nonelective contribution $305,000 $290,000
401(k) Plan 2022 2021
Maximum amount you may put into a 401(k) plan as a salary deferral $20,500 $19,500
Maximum catch-up contribution if you’re age 50 or older $6,500 $6,500
Maximum employee and employer contributions combined $61,000 $58,000
Maximum compensation considered for calculating employer contributions $305,000 $290,000

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