1. Greater limits on contributions to pension accounts
If you need to boost your retirement savings, we have now excellent news for 2023: higher contribution limits to your 401(k) and Individual Retirement Account.
In 2023, the deferral limit for workers is $22,500, up from $20,500, and top-up deposits for savers 50 and older jump to $7,500, up from $6,500. These increases also apply to 403(b) plans, most 457 plans, and savings savings plans.
“It is a big change for lots of people,” said certified financial planner Brandon Opre, founding father of TrustTree Financial in Huntersville, North Carolina.
But with no reminder from a counselor or 401(k) plan provider, those increases “may go undetected,” he said.
Contribution limits for IRA accounts have also increased, saving as much as $6,500 in 2023, up from $6,000 in 2022. While the equalization deposit stays at $1,000 in 2023, it’s going to be indexed to inflation starting in 2024 .
2. Tax savings adjusted for inflation
Scott Bishop, CFP and executive director of wealth solutions at Houston-based Avidian Wealth Solutions, said among the biggest changes in personal finance in 2023 are related to inflation.
For instance, the IRS in October announced “some relief” from higher federal income tax brackets for 2023, he said, meaning you could possibly earn more before you progress to the subsequent level.
Each parenthesis shows how much you’ll owe in federal income tax for every portion of your “taxable income,” calculated by subtracting the larger of the usual or itemized deductions from your adjusted gross income.
The usual deduction may even increase in 2023, rising to $27,700 for married couples filing jointly, up from $25,900 in 2022. Singles can claim $13,850 in 2023, up from $12,950 USD.
3. Higher threshold for long-term capital gains of 0%.
Experts say that when you plan to sell investments from a taxable portfolio in 2023, you are less prone to be billed for long-term capital gains taxes.
Based on inflation, so is the IRS (*5*)raised the income thresholds for the 0%, 15% and 20% long-term capital gain bands for 2023, referring to profitable assets held for greater than a yr.
“It should be quite significant,” Tommy Lucas, CFP and registered agent at Moisand Fitzgerald Tamayo in Orlando, Florida, recently told CNBC.
With higher standard deductions and income thresholds for long-term capital gains in 2023, you are more prone to fall into the 0% range, Lucas said.
In 2023, it’s possible you’ll qualify for the 0% rate if your taxable income is $44,625 or less for single applicants and $89,250 or less for married couples filing together.
4. Higher income limit for Roth IRA contributions
Experts say inflation adjustments in 2023 also mean more investors may qualify for Roth IRA contributions.
“We talk loads about Roth conversions,” said Lawrence Pon, CFP and CPA at Pon & Associates in Redwood City, Calif., referring to a technique that converts pre-tax IRA funds to Roth IRAs for tax-free future growth.
“But what about Roth [IRA] premiums?” he said, speaking on the Financial Planning Association annual conference in December, pointing to higher income limits for 2023.
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More Americans may qualify in 2023 because the adjusted gross income phasing out range increases to $138,000-$153,000 for single applicants and $218,000-$228,000 for married couples filing jointly.
While some investors could also be in search of “complicated” moves, resembling so-called backdoor Roth conversions that transfer after-tax 401(k) contributions to Roth IRAs, Pon encourages investors to double check their eligibility for Roth IRA contributions first.
5. More time for required minimum distributions
On December 23, Congress passed a A $1.7 trillion omnibus account of funds, including dozens of pension reserves referred to as “Secure 2.0.”
One among the regulations for 2023 is to alter the required minimum withdrawals, or RMDs, that should be taken annually from certain retirement accounts.
Currently, RMDs start at age 72, with the primary payment due on April 1 of the next yr and the due date on December 31 in future years. Nonetheless, Secure 2.0 pushes the starting age to 73 in 2023 and 75 in 2033.
“It would not affect people who find themselves already taking RMDs, even when you at the moment are 72,” said Nicholas Bunio, CFP with retirement counselors in Berwyn, Pennsylvania.
However the change can provide “great planning opportunities” when you’re younger and don’t need RMDs like Roth’s possible conversions, he said.