Written by:
Written by:
As the calendar turned to 2023, the IRS dictated major changes that could be relevant to your financial plan. Here are at least ten adjustments to consider moving forward that could apply to your financial, retirement, and tax planning.
1. 401k / 403b Limits
In 2023, the 402g deferral limit was increased to $22,500 for those under age 50 from its previous maximum of $20,500 in 2022. Additionally, the total amount that can go into a 401k / 403b plan (referenced as the 415(c) limit) was increased to $66,000 from its previous maximum of $61,000. Generally speaking, if cash flow allows, it makes sense to fully maximize these retirement planning contributions, as 401k plans grow tax-free, are asset protected in many states, and can distribute tax-free if there is a Roth option inside the plan.
For individuals over the age of 50, an additional $7,500 can be contributed as a “catch-up” contribution.
2. Roth IRA Limits
In 2023, the Roth IRA contribution limit was increased to $6,500 from its 2022 limit of $6,000. It is also worth noting that the income thresholds to directly contribute to a Roth IRA were raised to $138,000-$153,000 for single filers and $218,000-$228,000 for those married filing jointly. If incomes are higher than these thresholds, a Backdoor Roth IRA could make sense. However, there are many factors to consider before taking advantage of this loophole.
For individuals over the age of 50, an additional $1,000 can be contributed as a “catch-up” contribution.
3. Traditional IRA Limits
As was the case with the Roth IRA, the Traditional IRA limits also increased to $6,500 in 2023. While we generally prioritize funding Roth IRAs over Traditional IRAs, Traditional IRAs can be useful for those seeking a tax deduction in the year in which they make a contribution.
For individuals over the age of 50, an additional $1,000 can be contributed as a “catch-up” contribution.
4. Maximum Includible Compensation Limit
A lesser-known adjustment that could be applicable to many is the compensation limit increasing from $305,000 in 2022 to $330,000 in 2023. This dictates that, for most retirement plans, employer matching contributions will only consider the first $330,000 of compensation. For example, those earning $1M in 2023 contributing to a 401k plan with a matching contribution of 3% will only see that 3% contribution on their first $330,000 of compensation– not the full $1M. For those seeking to fully max out their 415(c) limit, it is important to be aware of how your specific retirement plan is structured to reverse engineer the correct contribution amounts.
5. Social Security Taxation Limit
If you’re ever curious why monthly checks at the beginning of the calendar year are slightly lower than checks towards the end of the year– it’s likely due in part to Social Security tax. Previously, the first $147,000 of earned income was subject to a 6.2% tax for Social Security. In 2023, this was increased to $160,200– meaning the first $160,200 of earned income will be subject to Social Security tax.
6. Health Savings Account Limits
The limits to contribution to a Health Savings Account have increased to $7,750 for families and $3,850 for single filers in 2023. HSAs are beneficial in the sense that they are tax deductible in the year in which you make a contribution, all growth inside of an HSA is tax-free, and distributions from an HSA are tax-free for qualified medical expenses. One factor to be aware of inside of your HSA is to ensure considering that your contributions are actually being invested in equities, and not just sitting in cash!
For individuals over the age of 55, an additional $1,000 can be contributed as a “catch-up” contribution.
7. Tax Bracket Adjustments
Something to consider moving into 2023 is the adjustments made to tax brackets, particularly for those seeking to keep shown income under a certain threshold. Both single and married filing jointly thresholds increased in 2023, as well as the income brackets dictating Medicare costs in retirement. Being aware of these limits and performing proactive planning can help ensure that your financial plan is aware of these adjustments.
8. Estate Planning Adjustments
Important considerations that adjusted in 2023 are the annual gift tax exclusion and estate tax lifetime exemption. An individual can now gift $17,000/year per person without reporting the gift to the IRS. Additionally, an individual can pass along $12,920,000 before he/she is subject to a 40% estate tax on remaining property.
9. Annual 529 Plan Contribution Limits
An individual can contribute $17,000 to a single 529 plan in a calendar year without counting as a “gift” from an IRS standpoint. If married, two spouses can “combine” and gift $34,000 together towards a 529 plan in 2023. If one is seeking to front-load a 529 plan, he/she can contribute $85,000 in one lump sum to satisfy five years’ worth of contributions. Again, if married, this can be combined as $170,000.
10. Standard Deduction Increased
The standard deduction, which the IRS allows for those who do not itemize their taxes, increased in 2023 to $13,850 for single filers and $27,700 for those filing jointly. This is a dollar-for-dollar credit against one’s income and is taken advantage of by most tax filers. There are certain situations where itemizing deductions makes sense, but this is a welcome adjustment for those who take the standard deduction.
Please consult with a financial or tax professional to determine how these adjustments and changes impact your personal financial plan moving forward in 2023.
In just 15 minutes we can get to know your situation, then connect you with an advisor committed to helping you pursue true wealth.
Add me to the weekly newsletter to say informed of current events that could impact my investment portfolio.
Important Disclosures:
Securities and advisory services offered through EWA LLC dba Equilibrium Wealth Advisors (a SEC Registered Investment Advisor).
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* The risk of loss in trading commodities and futures can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. The high degree of leverage is often obtainable in commodity trading and can work against you as well as for you. The use of leverage can lead to large losses as well as gains.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.
In 15 minutes we can get to know you – your situation, goals and needs – then connect you with an advisor committed to helping you pursue true wealth.
EWA, LLC dba Equilibrium Wealth Advisors, is an SEC-registered investment advisory firm providing investment advisory and financial planning services to clients.
Investments in securities and insurance products are not insured by any state or federal agency.
To view EWA’s public disclosure, registration, Form ADV and Part 2B’s, click here.
To view EWA’s Client Relationship Summary (CRS), click here.
In 15 minutes we can get to know you – your situation, goals and needs – then connect you with an advisor committed to helping you pursue true wealth.