Taxes are complicated…..there is no question about that. Part of the complexity comes from the myriad of limitations, exclusions, and phase-outs that can leave anyone confused. Many of these confusing rules are updated annually. With inflation over the past year exceeding rates not seen in over 40 years, there will be some important inflation adjusted changes starting on January 1st 2023. Let’s take a look at some of the revised amounts related to retirement accounts. Retirement planning and tax planning go hand in hand (as noted in a previous Common Cents article on retirement income planning), so understanding how these changes could benefit your retirement plan are important.
Retirement Accounts – Contribution Limits
Contributions to Employer Sponsored Plans: Annual employee contribution limits are increased to $22,500 from $20,500. The increase applies to 401(k), 403(b), most Sec. 457 plans, and the federal government’s Thrift Savings Plan (TSP).
Contributions to IRA Accounts: The limit on annual contributions to an IRA increased to $6,500, up from $6,000.
“Catch-up” contribution limit: For people aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased to $7,500, up from $6,500. This means that, starting in 2023, these same participants can contribute up to $30,000. The IRA catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
Contributions to SIMPLE Accounts: The amount individuals can contribute to their SIMPLE retirement accounts is increased to $15,500, up from $14,000. The catch-up contribution limit for employees aged 50 and over is increased to $3,500, up from $3,000
Retirement Accounts – Income Phase-Outs
The income ranges for determining eligibility to make deductible contributions to traditional IRAs, to contribute to Roth IRAs, and to claim the saver’s credit all increased for 2023.
For traditional IRAs, the phaseout range to make contributions for 2023 are:
- For single taxpayers covered by a workplace retirement plan, the phaseout range increases to between $73,000 and $83,000, up from between $68,000 and $78,000.
- For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phaseout range increases to between $116,000 and $136,000, up from between $109,000 and $129,000.
- For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the phaseout range increases to between $218,000 and $228,000, up from between $204,000 and $214,000.
- For a married individual filing a separate return who is covered by a workplace retirement plan, the phaseout range is not subject to an annual COLA and remains between $0 and $10,000.
For ROTH IRAs, the phaseout range to make contributions for 2023 are:
- For singles and heads of households, the income phase-out between $138,000 and $153,000, up from between $129,000 and $144,000.
- For married couples filing jointly, the income phaseout range increases to between $218,000 and $228,000, up from between $204,000 and $214,000.
- The phaseout range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual COLA and remains between $0 and $10,000.
Individuals who exceed the income limits are still able to act on the well known “backdoor ROTH” strategy to fund a ROTH IRA.
The income limit for the saver’s credit (also known as the retirement savings contributions credit) for low- and moderate-income workers is $73,000 for married couples filing jointly, up from $68,000; $54,750 for heads of household, up from $51,000; and $36,500 for singles and married individuals filing separately, up from $34,000.
The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.
This content not reviewed by FINRA
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