2023

Alexis DuffyNewsroomLeave a Comment

Number to Keep in Mind When Planning for 2023

Presented by The PensionmarkMeridien Team,

New Tax Brackets and Deductions:

Amid historic (and stubborn) inflation, the IRS has announced higher federal income tax brackets and standard deductions for 2023. The announcement may mean savings for Americans in all income brackets — welcome news as rent, gas, and grocery prices soar to a 40-year high 1

That said, here are a few key changes to note as we enter a new tax year:

  • Federal income tax brackets will increase by roughly 7% 2, allowing taxpayers to shield more of their hard-earned income from taxation. For example, single taxpayers earning $44,726 to $95,375 will pay $5,147 plus 22% of the amount over $44,725. Married taxpayers filing jointly making $89,451 to $190,750 will pay $10,294 plus 22% of the amount over $89,450. Outside those brackets? You can find your 2023 tax bracket information here 3.
  • The standard deduction is increasing from $25,900 in 2022 to $27,700 for married couples filing jointly and from $12,950 to $13,850 for single taxpayers.
  • The earned income tax credit amount will jump to $7,430 for qualifying taxpayers 4 with three or more children, up from $6,935 for tax year 2022.
  • The new IRS limit for FSA contributions for 2023 is $3,050 5, an increase of 7% from 2022’s threshold of $2,850.
  • Taxpayers will be able to give up to $17,000 in gifts in 2023 without paying taxes, up from $16,000 in 2022.
  • The IRS will exempt up to $12.92 million from the estate tax, up from $12.06 million for people who died in 2022 — another increase of roughly 7%.
  • The tax changes come days after the government announced that millions of Social Security recipients will get an 8.7% boost 6 in their benefits in 2023 — an average of $140 per month. 
  • Keep in mind that these changes are for the 2023 tax year and will have no impact on the taxes you file next March. That said, now is the perfect time to begin considering tax strategy as the 2023 tax year approaches. 

New Retirement Account Limits

Then on October 21, 2022 the IRS’s announced 7 a change to 401(K) account limits for 2023. 

401(k), 403(b), 457 plans, and Thrift Savings Plan

  • The amount individuals can contribute to their 401(k) plans in 2023 has increased to $22,500, up from $20,500 in 2022 7
  • The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan has increased to $7,500, up from $6,500 7
  • In total, participants 50 and over can contribute up to $30,000 ($22,500 + $7,500) beginning in 2023 7.

Traditional and Roth IRA

  • The limit on annual contributions to an IRA increased to $6,500, up from $6,000 in 2022.
  • The IRA catch-up contribution remains $1,000 for individuals 50 (and is not subject to an annual cost-of-living adjustment) 7.
  • The income phase-out range for taxpayers making contributions to a Roth IRA has increased to between $138,000 and $153,000 for singles and heads of household, up from between $129,000 and $144,000 7
  • The income phase-out range has increased for married couples filing jointly to between $218,000 and $228,000, up from between $204,000 and $214,000 7.

SSA and COLA

In addition to the IRS announcements the Social Security Administration (SSA) recently published a historic cost of living adjustment (COLA) for 2023. 

On a yearly basis, the SSA reviews the general cost of living and makes adjustments to its benefits offerings. For the upcoming 2023 calendar year, the COLA 8 increased by the highest amount in over 40 years at a rate of 8.7%–a direct response to continuing white-hot inflation that hit 8.2% year-over-year in September 2022. The COLA translates into an increase from $1,680 to $1,827 for the average retired worker monthly benefit, according to the SSA 9 .

And thankfully, in line with the increasing COLA, beneficiaries will experience a decrease in standard premiums for Medicare Part B, which is set to fall to $164.90 10 starting in January. Medicare Part B payments are often directly deducted from monthly SSA allotments before they reach recipients’ bank accounts.

The impact of the annual COLA has perhaps never before been more substantial, as the average increase is set to be more than $140 per month 11 beginning in January 2023. This will hopefully help seniors and retirees experience some relief from the rising cost of goods and services. Historically, a COLA that fails to keep pace with inflation only serves to exacerbate financial hardships.

While this increase is good news for seniors taking social security it’s not license for those taking Social Security to change spending habits all that much–as most seniors know all too well. 

For Seniors who have not taken Social Security will still reap the benefits of this increase even if they don’t take Social Security this year. (There is never a decrease in the COLA, so the higher payments are here to stay.) Keep in mind that, in some cases, it’s worth holding off taking Social Security for several years once you’re eligible. Of course, the benefits of doing so vary based on individual circumstances.

This significant increase in SSA payments could decrease the number of years through which Social Security is fully funded. Currently, the program can pay through 2035, but that could decrease by at least a year 12 as a result of the COLA.

That said, higher wages tied to inflation could help replenish Social Security funds. And relatedly, Americans not taking Social Security will see the amount of income subject to the Social Security tax increase 13 this year. 

Ultimately, some of the youngest workers saving for retirement  don’t expect Social Security 14  to be fully available when they retire. For those like them, who are worried about Social Security’s future, we encourage you to focus on what you can control – building a retirement plan while time is on your side. 

In our current inflationary environment, these changes and boosts in benefits are small but strategic ways you can mitigate inflation’s lingering impact.

Now, we understand that the changes to the COLA or retirement account limits could bring about quite a few questions, especially for those at or nearing retirement. If you or anyone in your family has questions about retirement, or you would like to discuss other ways to keep your investments on track amid a less-than-ideal market, please feel free to reach out. We are always here as a resource for you. 

The PensionmarkMeridien Team may be reached at 866-871-9963 or meridienteam@pensionmark.com

This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other tax professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment. Investments seeking to achieve higher rate of return also involve a higher degree of risk.

Citations.

  1.  NPR October, 18, 2022
  2.  MarketWatch, October 22, 2022
  3. CNBC, October 19, 2022
  4. IRS, October 2022
  5.  CBS news, October 2022
  6.  Social Security Administration, October 2022
  7.  IRS, October 2022
  8.  Social Security Administration, October 2022
  9. Social Security Administration, October 2022
  10.  Centers for Medicare and Medicaid Services, September 27, 2022
  11.  Social Security Administration, October 2022
  12. CNBC, October 13, 2022
  13. Social Security Administration, October 2022
  14.  CNBC, January 6, 2022

Pensionmark® Financial Group, LLC (“Pensionmark”) is an investment adviser registered under the Investment Advisers Act of 1940. Pensionmark® is affiliated through common ownership with Pensionmark Securities, LLC (member SIPC).

Leave a Reply

Your email address will not be published. Required fields are marked *