5 tax changes, investments that could boost your finances in 2023

1. Greater contribution limits to retirement accounts

If you’re looking to boost your retirement savings, there’s good news for 2023: higher contribution limits for your 401(k) and individual retirement account.

In 2023, the employee deferral limit is $22,500, up from $20,500, and catch-up deposits for savers 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.

“This is a big change for a lot of people,” said certified financial planner Brandon Opre, founder of TrustTree Financial in Huntersville, North Carolina.

But without a reminder from an adviser or your 401(k) plan provider, those increases “may go undetected,” he said.

Contribution limits have also increased for IRAs, allowing you to save up to $6,500 in 2023, up from $6,000 in 2022. While the catch-up deposit remains at $1,000 for 2023, it will be indexed to inflation from 2024.

2. Tax savings with plots adjusted for inflation

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

For example, the IRS announced in October “some relief” with higher federal income tax brackets for 2023, he said, meaning you can earn more before reaching the next one level

Each bracket shows how much you’ll pay in federal income taxes for each part 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 can claim $13,850 in 2023, up from $12,950.

3. Upper threshold for 0% long-term capital gains

If you plan to sell investments from a taxable portfolio in 2023, you’re less likely to run up a long-term capital gains tax bill, experts say.

Based on inflation, the IRS also increased the income thresholds for the long-term capital gains brackets of 0%, 15% and 20% by 2023, applying to profitable assets owned by more than a year

“It’s going to be pretty significant,” Tommy Lucas, 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, it’s more likely to fall to 0%, Lucas said.

For 2023, you can qualify for the 0% rate with taxable income of $44,625 or less for singles and $89,250 or less for married couples filing jointly.

4. Higher income limit for Roth IRA contributions

Experts say the 2023 inflation adjustments also mean more investors may qualify for Roth IRA contributions.

“We talk a lot about Roth conversions,” said Lawrence Pon, CFP and CPA of Pon & Associates in Redwood City, Calif., referring to a strategy that converts pre-tax IRA funds into a Roth IRA for a future tax free growth.

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

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More Americans may be eligible in 2023 because the adjusted gross income phaseout range rises to $138,000 to $153,000 for singles and $218,000 to $228,000 for married couples filing jointly.

While some investors may seek “complicated” moves, such as so-called backdoor Roth conversions, which transfer after-tax 401(k) contributions to a Roth IRA, Pon urges investors to check the contribution’s eligibility first from Roth IRAs.

5. More time for minimum required distributions

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

One of the provisions for 2023 is a change to the required minimum distributions, or RMDs, that must be taken annually from certain retirement accounts.

Currently, RMDs start when you turn 72, with a deadline of April 1 of the following year for your first withdrawal and a December deadline. 31 due date for future years. However, Secure 2.0 changes the starting age to 73 in 2023 and 75 in 2033.

“Those already taking RMDs won’t be affected, even if you’re now 72,” said Nicholas Bunio, a CFP with Retirement Wealth Advisors in Berwyn, Pennsylvania.

But the change can provide some “great planning opportunities” if you’re younger and don’t need the RMDs, such as possible Roth conversions, he said.

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