Other limitations applicable to deferred compensation plans are also affected by these adjustments under section 415. Section 415(d) requires that the Secretary of the Treasury annually adjust these limits for cost-of-living increases.
Max compensation for 401k 2021 code#
Why Are the 401k Limits Increasing for 2022?Īccording to IRS notice 2021-61, “Section 415 of the Internal Revenue Code (“Code”) provides for dollar limitations on benefits and contributions under qualified retirement plans. MORE FROM FORBES 6 Year-End Tax Planning Moves For Small Business Owners By David Rae You could easily double that if you spouse also works with you in your business. If you need to save more money that is allowed with a Solo 401(k) plan, make sure to check out the Cash Balance Plan which also saw it conrtibution limits increase to $245,000 in 2022. There are many tax planning strategies to help reduce the taxes paid on retirement income. Of course, taxes will be due on eventual withdrawals from the 401(k) plan. Not to mention the value of deferred gains on the value of investments within the 401(k). In this scenario, maxing out a solo 401(k) at the 2022 limits level could save a business owner $337,000 in income taxes over the next decade. For example, 50-year-old California business owners in the top federal and state tax brackets could be hit with a tax rate above 50%.
While this adjustment to 401(k) contribution limits for 2022 probably won’t be life-changing, it can help business owners save some money on taxes.
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