What the new 401(k), FSA contribution limits for 2022 mean for HR

After not increasing employee contributions this year, the agency says workers can put more money into their 401(k)s and their health FSAs next year.
By: | November 10, 2021

HR leaders have some positive benefits news to share with employees in the midst of open enrollment: Workers can sock away more money into their 401(k)s and their health FSAs next year.

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The employee contribution limit for 401(k) plans is increasing to $20,500 in 2022, up from $19,500 in 2020 and 2021, according to the IRS. Catch-up deposits for savers 50 and older will remain at $6,500, the IRS announced. The new amounts also apply to 403(b), most 457 and Thrift Savings Plans. The IRA limit for 2022 remains unchanged at $6,000 and hasn’t increased since 2019.

And for 2022, the dollar limit for employee contributions to flexible spending accounts, made pretax through salary reductions, is rising to $2,850, up from $2,750, the IRS announced. For health FSA plans that permit the carryover of unused amounts, the maximum carryover amount for 2022 is $570, up from $550.

The IRS did not increase employee contribution limits for 401(k)s or flexible spending accounts for 2021. Thresholds are adjusted annually for inflation and are usually announced around the time when employees are enrolling in benefits.

The IRS released 2022 health savings accounts limits back in May. Health savings account contribution limits for 2022 are increasing $50 for self-only coverage—from $3,600 to $3,650—and $100 for family coverage—from $7,200 to $7,300. That’s a 1.4% increase from this year. Employees 55 and older can still sock away an additional $1,000 a year.

Related: What to know about the 2022 HSA contribution limits

The 401(k) contribution limit increase comes as employees start to get more serious about their retirement savings after feeling insecure about their savings and financial security as a result of the ongoing pandemic. Schwab Retirement Plan Services found over the summer in its annual survey of 401(k) plan participants that workers’ confidence about achieving retirement goals has risen sharply since last year. More than half (53%) of 1,000 workers say they are very likely to achieve their retirement goals, compared to 37% in 2020—a positive sign after more than a year of financial turmoil and uncertainty caused by the pandemic. The survey also found that workers were planning to stash more money into their 401(k)s.

Experts say employers should encourage employees to fund their 401(k)s to the best of their ability. Employers have a great opportunity “to engage workers with education and drive awareness of benefits that can help them build financial security,” Catherine Golladay, head of Schwab Workplace Financial Services, told HRE earlier this year.

Kathryn Mayer is HRE’s benefits editor and chair of the Health & Benefits Leadership Conference. She has covered benefits for the better part of a decade, and her stories have won multiple awards, including a Jesse H. Neal Award and honors from the American Society of Business Publication Editors and the National Federation of Press Women. She holds bachelor’s and master’s degrees from the University of Denver. She can be reached at kmayer@lrp.com.