IRS Announces 2023 401(k) and IRA Limit Increases…
The announcement comes just in time for planning for the new year. That said, let us know if you have questions or would like to jump on a call for a quick end-of-year portfolio review. We are here to help!
401(k), 403(b), 457 plans, and Thrift Savings Plan
- The amount individuals can contribute to their 401(k) plans in 2023 has increased to $22,500, up from $20,500 in 2022.
- The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan has increased to $7,500, up from $6,500.
- In total, participants 50 and over can contribute up to $30,000 ($22,500 + $7,500) beginning in 2023.
Traditional and Roth IRA
- The limit on annual contributions to an IRA increased to $6,500, up from $6,000 in 2022.
- The IRA catch-up contribution remains $1,000 for individuals 50 (and is not subject to an annual cost-of-living adjustment).
- The income phase-out range for taxpayers making contributions to a Roth IRA has increased to between $138,000 and $153,000 for singles and heads of household, up from between $129,000 and $144,000.
- The income phase-out range has increased for married couples filing jointly to between $218,000 and $228,000, up from between $204,000 and $214,000.
Let’s talk taxes…
IRS Tax Bracket Changes for 2023:
Amid historic (and stubborn) inflation, the IRS has announced higher federal income tax brackets and standard deductions for 2023. The announcement may mean savings for Americans in all income brackets — welcome news as rent, gas, and grocery prices soar to a 40-year high.
That being said, here are a few key changes to note as we enter a new tax year:
- Federal income tax brackets will increase by roughly 7%, allowing taxpayers to shield more of their hard-earned income from taxation. For example, single taxpayers earning $44,726 to $95,375 will pay $5,147 plus 22% of the amount over $44,725. Married taxpayers filing jointly making $89,451 to $190,750 will pay $10,294 plus 22% of the amount over $89,450. Outside those brackets? You can find your 2023 tax bracket information here.
- The standard deduction is increasing from $25,900 in 2022 to $27,700 for married couples filing jointly and from $12,950 to $13,850 for single taxpayers.
- The earned income tax credit amount will jump to $7,430 for qualifying taxpayers with three or more children, up from $6,935 for tax year 2022.
- The new IRS limit for FSA contributions for 2023 is $3,050, an increase of 7% from 2022’s threshold of $2,850.
- Taxpayers will be able to give up to $17,000 in gifts in 2023 without paying taxes, up from $16,000 in 2022.
- The IRS will exempt up to $12.92 million from the estate tax, up from $12.06 million for people who died in 2022 — another increase of roughly 7%.
- The tax changes come days after the government announced that millions of Social Security recipients will get an 8.7% boost in their benefits in 2023 — an average of $140 per month.
- Keep in mind that these changes are for the 2023 tax year and will have no impact on the taxes you file next March. That said, now is the perfect time to begin considering tax strategy as the 2023 tax year approaches.
In our current inflationary environment, these changes and boosts in benefits are small but strategic ways you can mitigate inflation's lingering impact. If you have questions or would like to discuss other ways to keep your investments on track amid a less-than-ideal market, reach out and let’s schedule a meeting!