1. The largest contribution limits in 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 deferral limit for employees was $22,500, up from $20,500, and catch-up deposits for savers 50 and older rose to $7,500, up from $6,500. These increases also apply to 403(b) plans, most 457 plans, and savings plans.
“This is a big change for a lot of people,” said certified financial planner Brandon Ober, founder of TrustTree Financial in Huntersville, North Carolina.
But without a reminder from your 401(k) plan advisor or provider, these increases “may go undetected,” he said.
Contribution limits have also increased for IRAs, allowing you to save up to $6,500 for 2023, up from $6,000 in 2022. While the compensation deposit remains at $1,000 for 2023, it will mark inflation starting in 2024.
2. Tax savings with inflation-adjusted tax brackets
Some of the biggest personal finance changes of 2023 are related to inflation, said Scott Bishop, CFP director and CEO of Wealth Solutions at Houston-based Avidian Wealth Solutions.
For example, in October the IRS announced “some relief” as the federal income tax brackets for 2023 rose, he said, which means you can earn more before you get to the next level.
Each bracket shows how much you’ll owe in federal income taxes for each portion of your “taxable income,” calculated by subtracting the largest standard or itemized deductions from your adjusted total income.
The standard deduction also increases in 2023, rising to $27,700 for married couples filing a joint application, up from $25,900 in 2022. Single applicants may claim $13,850 in 2023, a jump from $12,950.
3. Higher threshold for long-term capital gains 0%
If you plan to sell investments from a taxable portfolio in 2023, you’re less likely to foot a long-term capital gains tax bill, experts say.
Based on inflation, the IRS also raised income thresholds of 0%, 15% and 20% for the 2023 long-term capital gains categories, which apply to profitable assets owned for more than a year.
“It’s going to be very important,” Tommy Lucas, CFP and registered agent for Moisand Fitzgerald Tamayo in Orlando, Florida, told CNBC recently.
Lucas said that with higher standard deductions and income thresholds for long-term capital gains in 2023, it will likely fall into the 0% category.
For 2023, you may qualify for the 0% rate with taxable income of $44,625 or less for single applicants and $89,250 or less for married couples filing together.
4. A higher income limit for Roth IRA contributions
Experts say the inflation adjustments for 2023 also mean more investors may qualify for Roth IRA contributions.
“We talk a lot about Roth conversions,” said Lawrence Pon, CFP and CPA at Pon & Associates in Redwood City, Calif., referring to the strategy of converting pre-tax IRA money into a Roth IRA for future tax-free growth.
But what about Ruth? [IRA] contributions? “
More Americans may be eligible in 2023 because the adjusted gross income range increases to between $138,000 and $153,000 for single applicants and $218,000 and $228,000 for married couples filing jointly.
While some investors may seek “complex” moves, such as so-called Roth back-end conversions, which move post-tax 401(k) contributions into a Roth IRA, Boone urges investors to double-check Roth IRA contribution eligibility first.
5. More time for required minimum distributions
in December. On September 23, Congress passed a $1.7 trillion comprehensive benefits bill, including dozens of retirement provisions known as “Secure 2.0.”
One of the provisions for 2023 is the change in the required minimum distributions, or RMDs, that must be taken annually from certain retirement accounts.
Currently, RMDs begin when you turn 72, with a deadline of April 1 of the year following your first drawing, and on. 31 due dates for future years. However, Secure 2.0 changes the starting age to 73 in 2023 and age 75 in 2033.
“Those who already take RMDs won’t be affected, even if you’re 72 now,” said Nicholas Ponyo, a staffing expert with Retirement Wealth Advisers in Berwyn, Pennsylvania.
But he said the change could provide some “great planning opportunities” if you’re younger and don’t need RMDs, such as potential Roth conversions.