What is the limit for annual additions in 2022?

The limit for annual additions to a 401(k) plan in 2022 is correctly identified as $61,000 or 100% of compensation. This limit encompasses total contributions to defined contribution plans, including employee elective deferrals, employer contributions, and allocations of forfeitures.

This rule is designed to ensure that retirement savings are made within certain boundaries to prevent substantial contributions that could lead to tax avoidance or inequitable distribution of benefits. For 2022, the total cap is applicable for individuals under the age of 50, while those aged 50 and above can contribute an additional catch-up amount, allowing for even greater savings potential in their retirement accounts.

The structure of this limit reflects IRS guidelines and is crucial for plan administrators to ensure compliance when managing retirement plans. Understanding these specifications is fundamental for those working within retirement plan administration, as it impacts both plan design and participant engagement.