The IRS recently announced a number of changes to retirement savings accounts, social security and tax brackets for 2023. Additionally, the IRS issued technical guidance regarding the cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items for the 2023 tax year.
Planning for retirement is one of the most important financial tasks most Americans have to consider. With so many moving parts, it can be difficult to keep up with all the changes that frequently occur in the retirement landscape. To make sure you get the most out of your retirement plan, it’s essential to be aware of everything that’s going. Here are 5 retirement tax changes you need to know for 2023.
The cost of living adjustment (COLA) for Social Security payments has been increased to 8.7% in 2023. This is substantially higher than last year, when the payout was out 5.9%. This adjustment results in an average increase of $146 per monthly benefit. For the average retired worker, their monthly check will increase from $1,681 to $1,827.
New 401(k) Contribution Limits
For 2023, the annual contribution limit for 401(k)s, 403(b)s, most 457 plans and Thrift Savings Plans have been bumped up from $20,500 to $22,500 in 2023. Additionally, individuals above the age of 50 will be eligible for catch-up contributions for up to $7,500. In total, employees above the age of 50 can contribute up to $30,000 to their 401(k). And for those that work for companies with match programs, the total annual contribution limit is now up to $66,000.
New IRA Contribution Limits
For those who have retirement funds outside of their employers, annual contribution limits have increased for traditional IRAs and Roth IRAs as well. Next year, individuals will be able to contribute up to $6,500 to their IRAs. However, catch-up contributions have not been raised, remaining at $1,000.
IRA Income Phase-Out Range
For traditional IRAs, the phaseout range in 2023 starts at $73,000 and ends at $83,000 for single taxpayers covered by a workplace retirement plan. This means single filers who earn more than $83,000 in 2023 cannot contribute to an IRA if they are covered by a workplace plan.
For couples filing jointly, the new phase-out range is $116,000 to $136,000, only if the spouse making the contribution is covered by a workplace plan. If one spouse does not have a workplace plan, but the other does, the phase-out range is $218,000 to $228,000.
Roth IRA Income Phase-Out Range
There are income limits, so individuals making above a specified threshold are eligible for reduced contributions. Those in an upper range of the threshold may not be eligible at all.
For single filers or heads of household, the 2023 Roth IRA phase-out range is now $138,000 to $153,000.
From increased government payments to higher limits for savings, make sure you know what’s new ahead so you can successfully plan for retirement. But remember, you should never contribute more than you can afford. If you haven't yet done so, check out our complimentary Tax Resources here where you'll find forms, explanations, and other tools to help you manage your taxes.
Oftentimes, it’s best to consult a financial professional to ensure you’re making the best financial decisions for your situation. If you’re interested in getting started on building a strong retirement plan, Agemy Financial Strategies can help. No matter where you are in your financial journey, we can create a plan tailored just to you.
Learn more, and request an appointment with us today.