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Planning for 2023: Retirement Plan Contribution Limits & Tax Changes

It's always a good time to plan for your financial future. With the new year just around the corner, it can be a good reason to consider the new contributions limits for retirement plans and tax changes in 2023.

Retirement Plan Contributions Amounts

The IRS recently announced that beginning in 2023, taxpayers will be allowed to contribute an additional $2,000 into their 401(k), 403(b) and most 457 plans. The 2023 contribution limit for these retirement plans will increase from the current level of $20,500 to $22,500.

Individuals age 50 and above are also eligible for catch-up contributions to their 401(k), 403(b) and most 457 plans. This means that these individuals can contribute above the $22,500 limit. The IRS increased the catch-up contribution value in 2023, from $6,500 in 2022 to $7,500. In total, employees age 50 and above can contribute up to $30,000 in these retirement plans!

The limits for IRA/Roth IRA contributions in 2023 will increase to $6,500. The IRA/Roth IRA catch-up contributions for individuals age 50 and above will remain $1,000.

Additionally, recent legislation has also made changes to the tax rules for 2023. Below are several of the important highlights to note.

Higher Health Saving Account (HSA) Limits In 2023

Individuals:

  • In 2023, the maximum annual contribution amount is $3,850 for an individual (up from $3,650 in 2022).
  • The catch-up contribution amount for those age 55 or older is $1,000 per year.

Families:

  • For families, the maximum annual contribution amount is $7,750 per year in 2023 (up from $7,300 in 2022).
  • For a family in the 35% marginal tax bracket, a maximum contribution can result in a federal income tax saving of $2,712.50 plus any state income tax and other benefits.

Anyone enrolled in a high deductible health plan that is HSA-qualified can set-up an HSA and benefit from the tax advantage. HSAs are an increasingly popular tax-favored benefit for workers and their families.

Increased Standard Deductions

The standard deduction is a specific dollar amount that reduces the amount of income on which you're taxed. It is an indexed amount that is adjusted each year to inflation. That means that as inflation increases, so does the amount exempt from income taxes. Below is a standard deduction chart for 2023:

While there are many pages to the tax code, these are some of the ways that you and your family can benefit in 2023 to potentially reduce your tax bill. We are more than happy to collaborate with you and your tax advisor on planning strategies for 2023.

If you have questions about your specific financial planning or investment strategy needs, we welcome you to Contact Us to set up time to discuss further. 

Disclosure:

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax situation with a qualified tax advisor.