2023 Contribution Limit and Tax Adjustments (mostly) Keep Up with Inflation

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While the 2023 social security cost-of-living increase of 8.7% grabbed most of the headlines, the IRS also adjusted tax brackets and contribution limits for 2023 to keep pace with the 8.2% annual inflation rate reported in October. While many adjustments kept up (401k contribution limits increased 9.8%, IRA limits by 8.3%), the Feds were stingier with others (tax bracket thresholds increased only 7.1%, the standard family deduction by 6.9%, Roth income limit by 6.9%). I’ve summarized the major updates for 2023 below.

If you have any questions about how these changes may impact your saving or financial plan in the coming year feel free to reach out to me at ryan@ffadvisor.com or 616.594.6205.

Retirement Account Updates

  • 401k contribution limit increased by $2,000 from $20,500 to $22,500

  • IRA contribution limit increased from $6,000 to $6,500

  • 401k catch-up contributions increased from $6,500 to $7,500

  • IRA catch up contributions did not increase, they are still $1,000

  • SIMPLE retirement account contribution limit increased from $14,000 to $15,500

  • Roth IRA income limit phase-out increased:

    • Between $138,000 and $153,000 for singles and heads of household

    • Between $218,000 and $228,000 for married filing jointly

  • SEP IRA contribution limit increased from $61,000 to $66,000

  • HSA contribution limit increased from $3,650 to $3,850 for singles. Family coverage increased from $7,300 to $7,750.

Tax Updates

  • Standard Deduction for 2023: Married filing jointly $27,700 up $1,800 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $13,850 for 2023, up $900.

  • Tax Bracket Adjustments for 2023:

    • 35% for incomes over $231,250 ($462,500 for married couples filing jointly);

    • 32% for incomes over $182,100 ($364,200 for married couples filing jointly);

    • 24% for incomes over $95,375 ($190,750 for married couples filing jointly);

    • 22% for incomes over $44,725 ($89,450 for married couples filing jointly);

    • 12% for incomes over $11,000 ($22,000 for married couples filing jointly).

  • For tax year 2023, the foreign earned income exclusion is $120,000 up from $112,000 for tax year 2022.

  • Estates of decedents who die during 2023 have a basic exclusion amount of $12,920,000, up from a total of $12,060,000 for estates of decedents who died in 2022.

  • The annual exclusion for gifts increases to $17,000 for calendar year 2023, up from $16,000 for calendar year 2022.

Social Security Updates

  • COLA Increase for 2023 will be 8.7%

  • Earnings limit for social security benefit adjustment for workers younger than full retirement age: $21,240

 

Fiduciary Financial is not a tax advisor, these figures are provided for informational purposes only.