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5 tax, investment changes that would boost your funds in 2023


1. Larger contribution limits on retirement accounts

For those who’re desirous to boost your retirement savings, there’s excellent news for 2023: higher contribution limits to your 401(k) and individual retirement account.

In 2023, the worker deferral limit is $22,500, up from $20,500, and catch-up deposits for savers age 50 and older jump to $7,500, up from $6,500. These increases also apply to 403(b) plans, most 457 plans and Thrift Savings Plans.

“That is a giant change for plenty of people,” said certified financial planner Brandon Opre, founding father of TrustTree Financial in Huntersville, North Carolina. 

But with out a reminder from an advisor or your 401(k) plan provider, these increases “might go undetected,” he said. 

The contribution limits have also increased for IRAs, allowing you to avoid wasting as much as $6,500 for 2023, up from $6,000 in 2022. While the catch-up deposit stays at $1,000 for 2023, it is going to index to inflation starting in 2024.

2. Tax savings with inflation-adjusted brackets

Scott Bishop, a CFP and executive director of wealth solutions at Houston-based Avidian Wealth Solutions, said a few of the biggest personal finance changes for 2023 are tied to inflation.

For instance, the IRS in October announced “some relief” with higher federal income tax brackets for 2023, he said, which suggests you may earn more before hitting the following tier.

Each bracket shows how much you may owe for federal income taxes for every portion of your “taxable income,” calculated by subtracting the greater of the usual or itemized deductions out of your adjusted gross income.

The usual 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

For those who’re planning to sell investments from a taxable portfolio in 2023, you are less more likely to trigger a bill for long-term capital gains taxes, experts say.

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 multiple 12 months.

“It is going to be pretty significant,” Tommy Lucas, a CFP and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida, recently told CNBC.

With higher standard deductions and income thresholds for long-term capital gains in 2023, you are more more likely to fall into the 0% bracket, Lucas said. 

For 2023, chances are you’ll 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

The 2023 inflation adjustments also mean more investors may qualify for Roth IRA contributions, experts say.

“We talk so much about Roth conversions,” said Lawrence Pon, a CFP and CPA at Pon & Associates in Redwood City, California, referring to a method that converts pretax IRA funds to a Roth IRA for future tax-free growth.

“But how about Roth [IRA] contributions?” he said, speaking on the Financial Planning Association’s annual conference in December, pointing to higher income limits for 2023.

More Americans could also be eligible in 2023 since 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.

While some investors may seek “complicated” moves, like so-called backdoor Roth conversions, which transfer after-tax 401(k) contributions to a Roth IRA, Pon urges investors to double-check Roth IRA contribution eligibility first. 

5. More time for required minimum distributions

On Dec. 23, Congress passed a $1.7 trillion omnibus appropriations bill, including dozens of retirement provisions referred to as “Secure 2.0.”

One in all the provisions for 2023 is a change to required minimum distributions, or RMDs, which should be taken annually from certain retirement accounts. 

Currently, RMDs start whenever you turn 72, with a deadline of April 1 of the next 12 months to your first withdrawal, and a Dec. 31 due date for future years. Nevertheless, Secure 2.0 shifts the starting age to 73 in 2023 and age 75 in 2033.

“Those already taking RMDs is not going to be affected, even if you happen to’re 72 at once,” said Nicholas Bunio, a CFP with Retirement Wealth Advisors in Berwyn, Pennsylvania.

However the change may provide some “great planning opportunities” if you happen to’re younger and do not need the RMDs, akin to possible Roth conversions, he said.

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