Many Gen X business owners can save more in 2022 with the IRS increases to retirement plan contribution limits.  In our work to help midlife business owners and leaders make work optional, retirement plan savings is an integral part of a comprehensive financial plan.  One way to accelerate your path to financial independence is to make sure you are taking advantage of the tax-deferred contributions and compounding growth available through your retirement plan(s).   Which of these highlights fit for you? 

2022 retirement contributions limits when you are 50

If your 50-year milestone birthday happens in 2022, you can take advantage of extra retirement savings.  You don’t have to wait for your birthday to contribute the additional $6,500 to your 401k, 403b, or 457 Plan.  If you’re eager to escape peak busyness, prioritizing  this extra retirement savings can help you achieve your desired outcome sooner.  

Self-employed and small business owner retirement contributions

For the self-employed and small business owners, the amount you can save in a SEP IRA or an Individual 401(k) goes up to $61,000 in 2022, a $3,000 increase. This amount is a combination of what you can defer as an employee and the amount you can contribute as an employer, as a percentage of your salary. The compensation limit used in the savings calculation for employer contributions also goes up from $290,000 in 2021 to $305,000 in 2022. 

Retirement plan contributions

Click here for full IRS announcement of 2022 retirement contribution limits

Retirement savings risk for highly compensated employees

If you’re a highly compensated employee (HCE) at your company, earning over $135,000 you may not have access to the full deferral limits every year if lower-paid workers at your company don’t participate.  This makes retirement plan design and participation critical at the company level.  On a personal level, contribute what you can as early as you can.  Delaying savings is a risk for many reasons, especially as you start to earn more.  

There is some good news for midlife HCE’s who are behind in their savings. The catch-up provisions that allow those over age 50 to contribute an additional $6,500 per year are not subject to the HCE restrictions, so even if your regular contributions are limited, you can still contribute the full $6,500 catch-up amount.

Benefits for Business Owners

Balancing wealth and life choices for business owners can be hard, especially when deciding where and how to direct your investments. Even for those whose net worth seems adequate to provide for retirement needs, maximizing retirement plan contribution provides financial benefits. Certain business owners, for example, can take advantage of higher plan limits, which serves to reduce current taxes and diversify your net worth. In many cases, much of a business owner’s net worth is tied to the value of their business and building these retirement accounts outside of your business allows more flexibility in cash flow and tax planning during retirement.  

Match retirement contributions with your personal financial plan

For our personal wealth clients, reviewing available retirement plans, limits, and investment options is an integral part of aligning your financial life and your goals. Contributing up to the allowable limits may not always be the answer, but ensuring that you are contributing the right amount and in the right types of accounts for your situation will make a meaningful difference in your ability to retire when, and how, you envision.

 

Trying to navigate the right retirement savings plan for you and your business?  Talk with one of our Certified Financial Planners® today to make sure you’re taking advantage of the best savings strategy for you.