5 tax and investment changes that could boost your finances in 2023

If you want to increase your retirement savings, here is good news for 2023: higher contribution limits for your 401(k) and Individual Retirement Account.

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

“It’s 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 advisor or your 401(k) plan provider, those increases “could go unnoticed,” he said.

Contribution limits have also increased for IRAs, saving you up to $6,500 for 2023, up from $6,000 in 2022. Although the catch-up deposit remains at $1,000 for 2023, it inflation index from 2024.

For example, the IRS announced in October “some relief” with higher federal tax brackets for 2023, he said, which means you can earn more before you reach the next level.

Each bracket shows the amount you will have to pay for federal income tax for each part of your “taxable income”, calculated by subtracting the higher of the standard or itemized deductions from your adjusted gross income.

The standard deduction also increases in 2023, to $27,700 for married couples filing jointly, up from $25,900 in 2022. Single filers can claim $13,850 in 2023, a jump from $12,950.

Based on inflation, the IRS also raised income thresholds for the 0%, 15% and 20% tranches of long-term capital gains for 2023, applying to profitable assets held for more than one year.

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

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

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.

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

“But what about Roth [IRA] contributions? he said at the Financial Planning Association conference. annual conference in December, indicating higher revenue caps for 2023.

More Americans may be eligible in 2023, as the adjusted gross income phase-out range is between $138,000 and $153,000 for single filers and between $218,000 and $228,000 for married couples who file jointly.

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

On December 23, Congress passed a $1.7 Trillion Omnibus Appropriations Billincluding dozens of pension plans known as “Secure 2.0”.

One of the provisions for 2023 is an amendment to minimum required distributionsor RMD, which must be deducted annually from certain retirement accounts.

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

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

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