The Internal Revenue Service has announced the 2022 cost of living adjustments for retirement and benefit plans. An overview is listed below, but you can review all of the updates here.
|401(k)/403(b)/457 Elective Deferrals||$20,500|
|401(k)/403(b) Catch-Up Contributions (Age 50+)||$6,500*|
|Flexible Spending Account (FSA)|
|Employee Contribution Limit for Health & Limited FSA||$2,850|
|Dependent Care Assistance Account Employee Contribution Limit: Single or Married Filing a Joint Return||$5,000*|
|Dependent Care Assistance Account Employee Contribution Limit: Married Filing a Separate Return||$2,500*|
|Monthly limit for Parking/Transit & Vanpool||$280|
|Health Savings Account (HSA)|
|HSA Maximum Contribution: Self-Only Coverage||$3,650|
|HSA Maximum Contribution: Family Coverage||$7,300|
|Age 55 HSA Catch-Up Contribution||$1,000*|
*No change from previous year.
With the increased contribution limits and open enrollment occurring at many companies, this may be a great time to review your benefits and make any necessary changes for 2022. Below are some common considerations for review:
Use it, lose it, or snooze it?
Flexible Spending Accounts and Health Savings Accounts have a few key similarities and a few differences; you should read through your benefit offerings to understand the features of each. The most significant difference, however, is the asset spend down time. For an FSA, you typically need to use the monies within 12 months. There may be a short grace period or a small carryover amount that may help extend those monies for a bit longer. If you still have an account balance after that, those monies will be forfeited, which makes it essential to review your expenditures and save accordingly ahead of time. For an HSA, there is no expiration date on the assets in your account – you can use the account for health expenses in 2022 or well into the future, even when you’re retired. Remaining balances in your HSA will remain invested and can potentially compound for future medical needs.
Max out your contributions:
If you are planning to max out your employer sponsored retirement plan, take the annual limit and divide it by the total number of paychecks you receive each year. Employer contributions to the employer sponsored retirement plan are in addition to the participant contribution amount. Participants can contribute up to $20,500 in 2022 or $27,000 if they qualify for the catch-up contribution.
For example, a participant paid biweekly (26 pays) would contribute $788.46 each pay period to max out their Employer Sponsored Retirement Plan ($20,500/26 pay periods=$788.46). If the participant is eligible for the catch-up contribution, they would be able to contribute $1,038.46 each pay ($20,500+$6,500/26 pay periods).
The annual Health Savings Account (HSA) limit is impacted by any employer contributions. To max out your HSA contribution, first deduct the employer contribution to your HSA.
For example, if the employer contributed $350 to the HSA, the participant for self-only coverage would be able to contribute $3,300 for 2022, or $126.92 per pay period ($3,650 – $350 employer contribution = $3,300/26 pay periods).
Set Up an Automatic Increase:
Perhaps maxing out your account(s) is not possible this year. But perhaps there is room for a small increase? If your retirement plan allows online deferral changes, you can set up an increase to start at the beginning of the new year, or another point in time. Whether you want to put a portion of a raise towards your retirement, or continue increasing your contributions amounts for 2022, this is a great option to set that up to occur automatically.
Maximize Your Employer Match:
Review the matching formula in your Employer Sponsored Retirement Plan and ensure you are receiving the full match. If you are contributing a dollar amount to your retirement plan, make sure it is enough to reach the full employer match. A participant earning $40,000 can contribute 4% or $60 a pay and not think much about the few dollars difference. If the match formula is 4% however, that slight dollar difference could lessen their total match amount.
It is also important to consider the timing of your employer match. If your employer does a true-up at year end, your total annual contributions will be considered, allowing you the opportunity to “front load” your contributions or defer any bonuses or large commissions. If your employer makes matching contributions each pay period instead, you will want to ensure that you contribute each pay period to receive the match.
Update Your Beneficiaries:
As you are adding your dependents to other benefit coverage, take a moment to review the beneficiaries for your retirement and Health Savings Accounts. Ensure that your beneficiaries are up to date, especially if you had a change in marital status, or dependents.