Rising costs (inflation) have prompted updates from the IRS, broadly impacting Americans' finances. Recent legislation may present further options for the new year - 2023.
Here are 5 key financial opportunities to explore for 2023, and how each one may affect your wallet.
1. Larger Contribution Limits on Retirement Accounts
In 2023, the employee deferral limit is $22,500, up from $20,500., and catch-up deposits for those 50 and older jump to $7,500, up from $6,500. These increases also apply to 403b plans, most 457 plans and TSP's.
2. Tax Savings With Inflation-Adjusted Brackets
In October of 2022, the IRS announced "some relief" with higher federal income tax brackets for 2023. Which means you can earn more before hitting the next income bracket tier.
Each bracket shows how much you'll owe for federal income taxes for each portion of your "taxable income," calculated by subtracting the greater of the standard or itemized deductions from your adjusted gross income.
The standard deduction also increases in 2023, rising to $27,700 for married couples filing jointly, up from $25,900 in 2022. Single filers may claim $13,850 in 2023, a jump from $12,950.
3. Higher Threshold for 0% Long-Term Capital Gains
If you're looking to sell investments in a taxable portfolio in 2023, you're less likely to trigger a bill for long-term capital gains.
Based on inflation, the IRS also bumped up the income thresholds for 0%, 15%, and 20% long-term capital gains brackets for 2023, applying to profitable assets owned for more than one year. This should be pretty significant....
For 2023, you may qualify for the 0% rate with taxable income of $44,625 or less for single filers and $89,250 or less for married couples filing together.
4. Higher Income Limit for Roth IRA Contributions
More Americans may be eligible in 2023 for Roth contributions because the adjusted gross income phaseout range rises to between $138,000 and $153,000 for single filers and $218,000 and $228,000 for married couples filing jointly.
5. More Time for Required Minimum Distributions
One of the provisions for 2023 is a change to RMD's, which must be taken out annually from certain retirement accounts.
Currently, RMD's start when you turn 72, with a deadline of April 1 of the following year for your first withdrawal, and a Dec 31st due date for future years. However, Secure 2.0 shifts the starting age to 73 in 2023 and age 75 in 2033.
Those already taking RMD's will not be affected, even if you're 72 right now.
This may bring more light to the Roth conversion strategies.