Introduction
In this post I’m going to cover the 2021 and 2022 contribution limits for Individual Retirement Accounts (IRAs), SEP IRAs (self employed individuals only), SIMPLE IRAs, 401(k) plans, and 403(b) plans.
It is important to be aware that SEP IRA, Traditional IRA, and Roth IRA contributions for a given year can be made from January 1st of that year until the tax deadline of the following year. For example, 2021 IRA contributions can be made until April 15, 2022. If you are making a 2021 contribution in 2022 (before the April deadline), you will want to do so before you file your tax return.
Employee contributions to SIMPLE IRAs, 401(k) plans, and 403(b) plans are payroll deductions (“elective salary deferrals”) and limited to the calendar year. Since 2021 is almost over, I only include 2022 for these.
Also note that an Individual Retirement Account (IRA) is specific to an individual so a husband and wife would each have his or her own account. In other words, a married couple does not contribute to one IRA for the couple. Each individual contribution has to be made to a specific account for either the husband or wife.
The purpose of this post is to simply provide the contribution limits for readers. It is not meant to tell any specific individual how much he or she can actually contribute to a certain plan. Some individuals are not eligible to contribute to certain types of plans due to the nuances of their employment and income situations. If you want to make contributions and you do not know what your options are, reach out to a qualified financial or tax advisor. If you are interested in working with True Vine Investments, the free portfolio review that I offer is a good place to start.
The Internal Revenue Services’ (IRS) websites for IRA contributions and 401(k) contributions are also excellent, up-to-date resources.
Traditional & Roth IRAs
For both 2021 and 2022, eligible individuals under age 50 can contribute up to $6,000 and eligible individuals 50 and above can contribute $7,000.
The contribution limit applies to any combination of contributions to Traditional and/or Roth IRAs. For example, a 55 year old, eligible individual could contribute $3,500 to a Traditional IRA and $3,500 to a Roth IRA.
What happens if you contribute more than the limit? Excess contributions are taxed at 6% per year for each year the excess amounts remain in the IRA. To avoid the 6% tax on excess contributions, you must withdraw the excess contributions from your IRA and any income earned on the excess contribution by the due date of your individual income tax return (including extensions).
SEP IRAs
Simplified Employee Pension (SEP) IRAs are a type of IRA for small businesses where only the employer makes contributions to Traditional or Roth IRAs for each employee.
SEP IRAs can also be used by eligible, self-employed individuals (sole proprietors and partners) to make contributions that are significantly larger than those available for 401(k)s, 403(b)s, and Traditional or Roth IRAs. Limits for self-employed individuals are the focus of this post.
For 2021, SEP IRA participants can contribute up to the lesser of $58,000 or 25% of eligible compensation.
For 2022, SEP IRA participants can contribute up to the lesser of $61,000 or 25% of eligible compensation.
SIMPLE IRAs
Savings Incentive Match Plan for Employees (SIMPLE) is another type of IRA for small businesses. Unlike the SEP IRA, eligible employees can also make annual contributions to their SIMPLE IRAs.
For 2022, eligible individuals under age 50 can contribute up to $14,000 and eligible individuals age 50 and above can contribute up to $17,000.
401(k) and 403(b) Plans
For 2022, eligible individuals under age 50 can contribute up to $20,500 and eligible individuals age 50 and above can contribute up to $27,000.
Joshua Hall, ChFC