Written by Alexis Grason, CFP®, RICP®

Leaves changing color and falling from trees, stores putting out holiday decorations, and the IRS releasing their annual updated numbers for 2023…   It’s that time of year when the IRS releases adjustments to limits for the next calendar year. Then the financially savvy reassess their current savings to make modifications for next year and take full advantage of the increases and potential tax saving opportunities.    Key Numbers for 2023

    • Retirement Savings: 
      • 401(k), 403(b), and most 457 plan limits increase to $22,500. For those 50 and older, the catch up provision increases to $7,500.
      • Total Defined Contribution Plan limits for 401(k)s increases to $66,000. This includes all company contributions plus employee contributions to company retirement plans including the Pre-Tax, Roth, After-Tax (think Mega Back Door Roth) excluding employee Catch-Up contributions.
      • IRA contributions increase by $500 to $6,500 and the catch-up contributions remain at $1,000.
        • Beware: the IRS released new income (modified adjusted gross income so MAGI specifically) phase-out ranges for making these contributions. Don’t let those snag you!
          • $218,000 – $228,000 if married filing jointly
          • $138,000 – $153,000 if single, head of house, or married filing separately
          • And if you make too much to contribute to a Roth IRA directly, we got you covered with this strategy: The Back Door Roth IRA!
    • Annual gifting exclusion increases to $17,000.
    • HSA Contribution Limit increases to $3,850 for self-only and $7,750 for families. Overall these are minimal increases from 2022. You can contribute an additional $1,000 for those 55+.
      • Watch this video for how this account has triple tax benefits!
  • FSA Contribution Limit is $3,050 for Healthcare FSA. The limit for Dependent Care FSA remains at $5,000 married filing jointly.

Marginal Bracket Increases Pay attention to how the marginal tax brackets are changing for 2023 as well; they are bumping up to account for inflation. This means year-end strategies could mean pushing some income to 2023 when you have a chance to maximize a tax bracket even further. 

  • 2022 Single Filers with a taxable income between $89,076 and $170,050 found themselves in the 24% tax bracket. In 2023, the range is $95,376 to $182,100.
  • 2022 Married Couples Filing Jointly with a taxable income between $340,101 and $431,900 found themselves in the 32% tax bracket. In 2023, the range is $364,201 to $462,500.

For example, if you are a retired couple looking to create cash from your tax-deferred portfolio, you could create the cash now protecting it from further market volatility and then take a portion of the distribution prior to year-end and then the remaining cash needs at the beginning of 2023. A CPA recently suggested taking a ⅓ of the need in 2022 and then ⅔ of the need in early 2023 to leverage the increased tax brackets. Each client situation is different, so be sure to evaluate your options with your professional advisory team.   Taxes on wages

  • Social Security Wage Base increases to $160,200. This is the amount of your income subject to Social Security taxes (6.2%). 
  • This is not new for this year but instead a friendly reminder to avoid tax surprises! You will have an additional Medicare tax of 0.9% if your wages are in excess of certain ranges. This threshold is important to note if you have dual earners in your household and thus you will incur the additional tax but it may not be reflected on your tax withholding per pay.
    • $250,000 married filing jointly
    • $200,000 single

There are many others but these increases top the list. Add “adjust your 401(k) and HSA savings” to your seasonal planning along with gift lists and holiday shopping! Written by Alexis Grason, CFP®, RICP®

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