Big Changes for 2023
Every year some of the rules that govern our investment accounts can change, and we’re going to see some fairly significant changes for 2023. Let’s go through them so that you can be prepared!
First, if you’re still working and contributing to a 401(k), 403(b), 457 or Thrift Savings Plan (TSP), the Internal Revenue Service just announced that the annual contribution limit for employees has been increased from $20,500 to $22,500.
Likewise, they also raised the yearly contribution limit for both IRAs and Roth IRAs from $6,000 to $6,500.
Also, anyone over age 50 has been able to increase their contributions to both employer retirement plans and IRAs – something known as the “Catch-Up” provision. Well, that’s been increased as well for employer plans (401k, 403b, 457, TSP). Now, if you’re 50 or older, you can add an additional $7,500 into your retirement plan, over and above the $22,500 limit, for a total of $30,000. This number is up from the 2022 Catch-Up maximum of $6,500.
If your company offers a SIMPLE retirement plan (one that we typically see at smaller firms), your annual contribution maximum has increased from $14,000 to $15,500, and your Catch-Up contribution limit was increased slightly, from $3,000 to $3,500. So, to max out this plan, you could contribute as much as $19,000.
But, interestingly, the IRS did not increase the Catch-Up provision for IRA’s . . . it remains at $1,000 per year.
The “Phase-Out” range for individuals being able to contribute to an IRA or a Roth-IRA has also changed, and, same as the old rules, it depends upon whether or not you have a workplace retirement plan that you can participate in.
So, for single taxpayers covered by a retirement plan at work, you can make a full tax-deductible contribution to an IRA if your income is below $73,000 (up from $68,000). If your income is above $83,000 (up from $78,000), then you can still make an IRA contribution, but it won’t be tax-deductible! And, if your income falls between $73,000 and $83,000 your allowable tax-deductible contribution is prorated between those two numbers.
If you’re married filing a joint return, the phase-out range is increased to between $116,000 and $136,000, up from the current $109,000 to $129,000.
If you are NOT covered by an employer retirement plan, but you’re married to someone who is, the phase-out range is increased to between $218,000 and $228,000, which is an increase over the current range of $204,000 to $214,000.
And, if you’re in the rare group of married individuals filing a separate return and you’re covered by a workplace retirement plan, your phase-out range is very small – from $0 to only $10,000. So, under those circumstances, the government cuts you almost no slack!
For Roth-IRA the phase-out ranges are similar, but allow you to have significantly higher income thresholds to qualify.
Single taxpayers and heads of households can earn up to $138,000 and make a full Roth IRA contribution, with the range topping out at $153,000. This is an increase over the current range of between $129,000 and $144,000.
For married couples filing jointly the Roth-IRA income phase-out range goes from $218,000 to $228,000, up from the current $204,000 and $214,000.
Unfortunately, the same very strict income limits apply for those married taxpayers filing a separate return – from $0 to $10,000.
Finally, we need to look at the new Income Tax tables for 2023. The government gave us yet another gift by lowering taxes once again! We already had the lowest tax rates we’ve had in decades and now they are even more attractive, with higher standard deductions as well. Like Christmas come early!
Single Filing Individual Return (other than surviving spouses and heads of households)
Tax Rate | 2023 Taxable Income | 2022 Taxable Income |
10% | $0 to $11,000 | $0 to $10,275 |
12% | Over $11,000 to $44,725 | Over $10,275 to $41,775 |
22% | Over $44,725 to $95,375 | Over $41,775 to $89,075 |
24% | Over $95,375 to $182,100 | Over $89,075 to $170,050 |
32% | Over $182,100 to $231,250 | Over $170,050 to $215,950 |
35% | Over $231,250 to $578,125 | Over $215,950 to $539,900 |
37% | Over $578,125 | Over $539,900 |
Married Filing Joint Returns (and surviving spouse)
Tax Rate | 2023 Taxable Income | 2022 Taxable Income |
10% | $0 to $22,000 | $0 to $20,550 |
12% | Over $22,000 to $89,450 | Over $20,550 to $83,550 |
22% | Over $89,450 to $190,750 | Over $83,550 to $178,150 |
24% | Over $190,750 to $364,200 | Over $178,150 to $340,100 |
32% | Over $364,200 to $462,500 | Over $340,100 to $431,900 |
35% | Over $462,500 to $693,750 | Over $431,900 to $647,850 |
37% | Over $693,750 | Over $647,850 |
Married Filing Separate Returns
Tax Rate | 2023 Taxable Income | 2022 Taxable Income |
10% | $0 to $11,000 | $0 to $10,275 |
12% | Over $11,000 to $44,725 | Over $10,275 to $41,775 |
22% | Over $44,725 to $95,375 | Over $41,775 to $89,075 |
24% | Over $95,375 to $182,100 | Over $89,075 to $170,050 |
32% | Over $182,100 to $231,250 | Over $170,050 to $215,950 |
35% | Over $231,250 to $346,875 | Over $215,950 to $323,925 |
37% | Over $346,875 | Over $323,925 |
Heads of Households
Tax Rate | 2023 Taxable Income | 2022 Taxable Income |
10% | $0 to $15,700 | $0 to $14,650 |
12% | Over $15,700 to $59,850 | Over $14,650 to $55,900 |
22% | Over $59,850 to $95,350 | Over $55,900 to $89,050 |
24% | Over $95,350 to $182,100 | Ove r$89,050 to $170,050 |
32% | Over $182,100 to $231,250 | Over $170,050 to $215,950 |
35% | Over $231,250 to $578,100 | Over $215,950 to $539,900 |
37% | Over $578,100 | Over $539,900 |
Standard Deduction Raised
- The standard deduction for single taxpayers and for married taxpayers filing separately will rise by $900 to $13,850, up from $12,950.
- The standard deduction for married taxpayers filing joint returns will rise by $1,800 to $27,700, up from $25,900.
- The standard deduction for heads of households will rise by $1,400 to $20,800, up from $19,400.
And, there you have the big changes to retirement plan contributions and Income Taxes for 2023! As always, should you have any questions about how these changes might impact you, or you wish to go over strategies as to how you can best take advantage of higher retirement plan contribution limits and broadly lower income taxes, please reach out to us!
Ray