PLANSPONSOR - October-November 2022 - 6

RULES & REGULATIONS
Contribution Caps Take a Big Leap
O
and
n October 21, the IRS announced
next year's limits on savings
to 401(k) plans, 403(b) plans
individual
retirement
accounts.
The annual 401(k) contribution limit
will increase from this year's $20,500 to
$22,500. The annual IRA contribution
will increase from $6,000 to $6,500.
The contribution caps for employees
who participate in 401(k), 403(b), most 457
plans or the federal government's Thrift
Savings Plan will increase by almost
10%-the biggest jump in decades.
The Consumer Price Index for All
Urban Consumers is the benchmark used
to determine the annual limits. The costof-living
increase of 8.2%-the largest
since 1982-explains why most of the
dollar limits will go up next year.
Catch-up contributions for participants
over age 50 will increase to $7,500
for a 401(k), allowing a maximum of
$30,000, in total, saved next year. The
$1,000 catch-up contribution for
IRAs
6 PLANSPONSOR.COM October - November 2022
remains
unchanged, however,
letting
those older savers contribute up to $8,500.
Section 415 of the Internal Revenue
Code provides for dollar limits on benefits
and contributions to qualified retirement
plans. Section 415(d) requires that the
Secretary of the Treasury annually adjust
these limits for cost-of-living increases.
Other limitations applicable to deferred
compensation plans are also affected by
the adjustments under Section 415. Under
Section 415(d), the adjustments are to be
made by way of procedures similar to those
used to adjust benefit amounts according
to Social Security Act, Section 215(i)(2)(A).
The higher contribution limits are
good news for people with the financial
wherewithal to save to that degree. But,
due to high inflation, most employees
will not come close to maxing out their
deferrals, says Christine Benz, director of
personal finance for Morningstar. Higher
costs for basic needs-food, housing, gas
and heat- " make it even more difficult for
many households to find the funds to save
and invest, " Benz says.
Many retirement savers fear the
financial repercussions of a recession,
an Empower Retirement research
brief, " Navigating Change for a Better
Tomorrow, " says.
Empower research shows that inflation
and recession concerns are affecting
employees directly, as 52% of survey
respondents said they will put more money
into retirement savings, while 40% plan to
save less for retirement.
" Although the United States was not in
a recession when the study was conducted,
73% reported feeling anxious about how
they would cope financially should one
occur, " states the brief, which draws on
Empower's Wealth and Wellness Index
Mid-Year Survey. " Six in 10 (60%) said
they would ride out a recessionary storm
by delaying a major purchase [while] others
said they would look for ways to make additional
income. " -Noah Zuss
Art by Miriam Martincic
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PLANSPONSOR - October-November 2022

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