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1. Larger contribution limits on retirement accounts
If you’re eager to boost your retirement savings, there’s good news for 2023: higher contribution limits for your 401(k) and individual retirement account.
In 2023, the employee deferral limit is $22,500, up from $20,500, and catch-up deposits for savers age 50 and older jump to $7,500, up from $6,500. These increases also apply to 403(b) plans, most 457 plans, and Thrift Savings Plans.
“That’s a big change for a lot of people,” says certified financial planner Brandon Opre, founder of TrustTree Financial in Huntersville, North Carolina.
But without a reminder from an advisor or your 401(k) plan provider, these increases “could go unnoticed,” he said.
Contribution limits have also been increased for IRAs, allowing you to save up to $6,500 for 2023, up from $6,000 in 2022. While the catch-up deposit for 2023 remains $1,000, starting in 2024 it will be indexed to inflation.
2. Tax savings with inflation-adjusted brackets
Scott Bishop, a CFP and executive director of wealth solutions at Avidian Wealth Solutions in Houston, said some of the biggest personal financial changes for 2023 are related to inflation.
For example, in October, the IRS announced “some relief” with higher federal income tax brackets for 2023, he said, meaning you can earn more before moving to the next level.
Each bracket shows how much you owe in federal income taxes for each portion of your “taxable income,” calculated by subtracting the larger of the standard or itemized deductions from your adjusted gross income.
The standard deduction also increases in 2023, rising to $27,700 for married couples filing jointly, up from $25,900 in 2022. Single filers can claim $13,850 in 2023, a jump from $12,950.
3. Higher threshold for 0% capital gains in the long term
If you plan to sell investments from a taxable portfolio in 2023, you’re less likely to incur a long-term capital gains tax bill, experts say.
Based on inflation, the IRS also raised income thresholds for 0%, 15% and 20% long-term capital gain brackets for 2023, applicable to profitable assets owned for more than a year.
“It’s going to be pretty important,” Tommy Lucas, a CFP and enrolled agent with Moisand Fitzgerald Tamayo in Orlando, Florida, recently told TBEN.
With higher standard deductions and income thresholds for long-term capital gains in 2023, you’re more likely to fall into the 0% bracket, Lucas said.
For 2023, you may qualify for the 0% rate with taxable income of $44,625 or less for single filers and $89,250 or less for married couples filing together.
4. Higher Income Limit for Roth IRA Contributions
The 2023 inflation adjustments also mean more investors could qualify for Roth IRA contributions, experts say.
“We talk a lot about Roth conversions,” said Lawrence Pon, a CFP and CPA at Pon & Associates in Redwood City, California, referring to a strategy that converts pre-tax IRA funds into a Roth IRA for future tax-free growth.
“But what about Roth [IRA] contributions?” he said, speaking at the Financial Planning Association’s annual conference in December, pointing to higher income limits for 2023.
More Americans may qualify in 2023 as the adjusted gross income phaseout range increases to between $138,000 and $153,000 for single filers and $218,000 and $228,000 for married couples filing jointly.
While some investors may be looking for “complicated” moves, such as so-called backdoor Roth conversions, that transfer after-tax 401(k) contributions to a Roth IRA, Pon urges investors to first verify that the Roth IRA contribution is eligible.
5. More time for required minimum benefits
On Dec. 23, Congress passed a $1.7 trillion bill for omnibus lending, including dozens of retirement benefits known as “Secure 2.0.”
One of the provisions for 2023 is a change to the required minimum distributions, or RMDs, that must be taken annually from certain retirement accounts.
Currently, RMDs begin when you turn 72, with a TBEN of April 1 of the following year for your first withdrawal and an expiration date of December 31 for future years. Secure 2.0, however, shifts the starting age to 73 years in 2023 and 75 years in 2033.
“Those already taking RMDs won’t be affected, even if you’re 72 now,” says Nicholas Bunio, a CFP with Retirement Wealth Advisors in Berwyn, Pennsylvania.
But the change could provide some “great planning opportunities” if you’re younger and don’t need the RMDs, such as potential Roth conversions, he said.