Fall is my favorite time of the year, and it is here. The leaves have begun to change, the temperatures are starting to cool off, and we are in the middle of college football season. Just like the weather has begun to change, the IRS has made changes that will affect your retirement planning in 2023.
On October 21st, the IRS announced fundamental changes that affect the US taxpayer. Here are some of those adjustments:
• The contribution limit for employees under 50 who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan is increased to $22,500, up from $20,500.
• The limit on annual contributions to an IRA increased to $6,500, up from $6,000. The IRA catchup contribution limit for individuals aged 50 and over is not subject to an annual cost of living adjustment and remains $1,000.
• The income phase-out range for taxpayers making contributions to a Roth IRA is increased to between $138,000 and $153,000 for single filers and heads of household, up from between $129,000 and $144,000. For married couples filing jointly, the income phase-out range is increased to between $218,000 and $228,000, up from between $204,000 and $214,000.
• Social Security Payments will see an 8.7% increase in the benefit amount for 2023.
• The standard deduction for married couples filing jointly for tax year 2023 rises to $27,700 up $1,800 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $13,850 for 2023, up $900 from 2022.
• The annual exclusion for gifts increases to $17,000 for calendar year 2023, up from $16,000 for calendar year 2022.
• Marginal tax brackets will see an approximate 7% increase for 2023.
The IRS has been busy making changes for the upcoming year. Because we must understand the tax code, Joe Clark, CFP®, and I attend Ed Slott's Elite IRA Advisor Group workshop twice a year to ensure we stay updated with these changes and keep our FEG families informed. One of the most important things you can do for your retirement planning is to build tax diversification inside your investment accounts. The three types of accounts you should be saving in are tax-deferred accounts (401(k), 403(b), IRA), tax-free accounts (Roth IRA), and taxable brokerage accounts. For example, if you have all your retirement savings in a tax-deferred IRA when tax rates increase in 2026, you will have less money because you will owe more for the taxes you have not paid yet. However, suppose you have done proper tax planning and built tax diversification inside your retirement accounts; when tax rates increase in 2026, you may decide to use your Roth money above a certain marginal tax bracket.
Remember, the IRS provides the rules and regulations for how much you can save and how it can be saved, but only within retirement plans. They do not offer forced guidance in other saving mechanisms. Your retirement journey is unique, and you need to determine how much you should save, do not let the IRS box in your retirement.
Financial Enhancement Group is an SEC Registered Investment Advisor. Securities offered through World Equity Group, Inc. Member FINRA/SIPC. Advisory services can be provided by Financial Enhancement Group (FEG) or World Equity Group. FEG and World Equity Group are separately owned and operated.