Who is ready for 2023?
For many years we’ve had the benefit of very low inflation, so cost-wise 2022 was tough on all of us. The flip side to seeing such high inflation is that the IRS has put in place some very generous indexing for 2023. Let’s take a look at the IRS’s recent guidance about the changes.
For clients who are still saving money towards retirement, 2023 will allow for additional tax-deferred and tax-free savings. As financial planners, we’re happy to see these numbers increase! This said, many clients will need to make changes to their paycheck withholding.
TSP, 401(k), 403(b), and 457 plans have new contribution limits of $22,500. For those age 50 and over, the catch-up provision will increase to $7,500, meaning a total of $30,000 can be contributed.
Roth and Traditional IRAs are seeing their first contribution change in 4 years this year – YES!!! The maximum contribution is now $6,500. For those age 50 and over, the catch-up provision is still in place and remains unchanged at $1,000, meaning a total of $7,500 can be contributed.
As always, there are some income rules when making contributions to both IRAs and Roth IRAs. If you would like to contribute to an IRA in addition to your workplace plan, please talk with us to make sure you’re eligible.
For SIMPLE IRAs, the contribution limit is now $15,500. For those age 50 and over, the catch up provision is still in place and is now $3,500, meaning that a total of $19,000 can be contributed.
Those using a SEP IRA have a limit of the lesser of 25% of compensation, or $66,000.
Lastly, for those who are self-employed and using individual 401(k) plans, the maximum defined contribution limit has increased to $66,000. For those age 50 and over, the catch-up provision is still in place and is now $7,500, meaning a total of $73,500 can be contributed.
In non-retirement news, many clients are looking to gift periodically to family members. In 2023, the gift exclusion amount increases to $17,000.
For those who have high deductible health plans and are eligible to contribute to HSAs, we’re excited to share that the self-only contribution limit will be increased to $3,850, and the family contribution limit will increase to $7,750.
Flexible spending accounts will also see an increase in 2023. The Health FSA limit is now $3,050. The Dependent Care FSA maximum was not eligible for inflation adjustment and will remain at $2,500 for married filing separately, and $5,000 for singles and married filing jointly.
Pre-tax commuter and parking contribution limits are increasing to $300 for the year.
A new benefit born out of the CARES Act in 2020 is the ability for employers to contribute to employee student loan repayment. If the benefit is less than $5,250 a year, the repayment is excludible from employee wages. Benefits over this amount are included in wages and are taxable to the employee. Most employers do not currently offer this benefit, but the companies that do have started to increase substantially over the past few years.
If you have any questions about this information, or wonder whether it can or does apply to you and your situation, please give us a call. We would be happy to discuss your specific circumstances.
Source: www.irs.gov
This information is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product or concept. These materials are not intended as any form of substitute for tax, legal, or individualized investment advice. The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own.
Certain information contained herein was derived from third party sources as indicated. While the information presented herein is believed to be reliable, no representation or warranty is made concerning the accuracy of any information presented. We have not and will not independently verify this information. Where such sources include opinions and projections, such opinions and projections should be ascribed only to the applicable third party source and not to Rembert Pendleton Jackson.