May 3, 2023

EWA’s 10 Point – 2023 Financial Planning Tips

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.

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