First of all, Happy New Year! As you make your plans for the coming year, it’s important to take note of the changes in contribution limits and other tax changes in 2023.
Social Security
Inflation creates a number of financial problems, but high inflation does signal a healthy increase in Social Security payments. Rates will actually increase 8.7% in 2023!
401(k)
I view 401(k) plans as a high priority — especially if your employer does contribution matching. For the under-50 crowd, you can contribute $22,500 this year – a $2,000 increase. If you’re 50 or older, you can also use the catch-up contribution which will be $7,500 – a $1,000 increase. The same rules apply to 403(b) plans, Thrift Savings Plans and most 457 plans.
IRA
For both traditional and Roth IRAs, contribution limits will be $6,500 – up $500. Catch-up contributions for those 50 and older remain unchanged at $1,000. (In addition, the income cutoff for IRA tax deductions has increased. For example, the tax deduction eligibility of traditional IRAs is now phased out over the $73,000 to $83,000 range for joint filers.)
Tax Rates
Marginal tax rates remain unchanged in 2023. The dollar thresholds for particular brackets have increased due to inflation. Here are the rates for single filers for 2023:
- 37% for incomes over $578,125 (over $693,750 for married couples filing jointly)
- 35% for incomes over $231,250 (over $462,500 for married couples filing jointly)
- 32% for incomes over $182,100 (over $364,200 for married couples filing jointly)
- 24% for incomes over $95,375 (over $190,750 for married couples filing jointly)
- 22% for incomes over $44,725 (over $89,450 for married couples filing jointly)
- 12% for incomes over $11,000 (over $22,000 for married couples filing jointly)
- 10% for incomes of $11,000 or less ($22,000 or less for married couples filing jointly)
Standard Deduction
The standard deduction for those who do not itemize increased to $13,850 for singles filers and $27,700 for married couples filing a joint return.
Estate Taxes
Estates will be exempt from Federal taxes up to $12,920,000. The limit in 2022 was from $12,060,000.
Required Minimum Distributions
Washington had discussed increasing the age at which you must take your RMD from 72 to 73, but that legislation is still pending so 72 remains the rule for 2023. You may know that the RMD is calculated by dividing the value of your combined retirement accounts by the projected life expectancy for your age group. With markets down at the close of the year, portfolios will be worth less and RMDs will therefore be smaller. This can be helpful if you don’t need all of your RMD this year.
Naturally there are other changes in the tax laws and there are a lot of details as to what applies to whom. So, if you’d like to discuss how the 2023 tax rules affect your situation, or any other financial matters, we can discuss this in a no-charge, no-obligation initial meeting. Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.
This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products. Please consult your tax or investment advisor for specific advice.