Key IRS Numbers for 2023

Maura Schauss |

From the CFP® Team at Washington Wealth Advisors

As the crisp air of the season begins to take hold, we financial advisors spend time on year-end wrap up activities and preparations for 2023 with our clients.  Some of the important factors affecting our thinking are the key numbers published by the IRS for 2023 limits and deductions.  It allows us to plan for our clients and develop strategies to support the best ways to help them succeed financially.

Here are some of the key numbers that the IRS has released for 2023.

Defined Contribution Plans

Employees will be able to increase their elective salary deferrals to their defined contribution plans significantly in the coming year.  Remember that, unlike IRAs, 2022 defined contributions must be made before December 31, 2022.

  • The salary deferral contribution limit will increase to $22,500 in 2023 for employees under age 50. 
  • Catch-up contributions for those age 50 or older by the end of the calendar year increases to $7,500, for a total employee contribution of up to $30,000. 
  • However, the total defined contribution maximum limit, from all sources (including employer contributions and after-tax contributions), has increased to $66,000 for 2023.

Traditional IRAs

  • IRA contribution limits increased to $6,500 per year with a $1,000 catch-up contribution allowed for workers over 50.  Anyone with at least $6,500 (or $7,700) of earned income can make a Traditional IRA contribution.  However, such contributions may or may not be tax deductible, depending on income. 
  • If both a worker and spouse do not have access to an employer-sponsored retirement plan, then Traditional IRA contributions are always deductible, regardless of income. 
  • If a worker and/or spouse is covered by an employer-sponsored plan, then the deductibility of Traditional IRA contributions decreases as income increases.   These limits have increased for 2023:
    • Singles and Head of Household: The phase-out range for the deductibility of a Traditional IRA for those covered by an employer-sponsored plan now starts at $73,000.
    • For married couples filing jointly: The phase-out range now starts at $116,000.  However, if only one spouse is covered by an employer plan, the phase-out does not begin until $218,000.

Roth IRAs

  • Roth IRA contribution limits also have increased to $6,500 per year with a $1,000 catch-up contribution allowed for workers over 50, assuming there is at least an equivalent amount of earned income during the year.
  • Roth IRA are never deductible unlike Traditional IRAs.  All contributions are made with after-tax dollars.
  • Income limits apply to making a Roth IRA contribution, but the good news is that these limits are increasing:
    • Married taxpayers filing jointly – The Roth IRA income phaseout range begins at $218,000.
    • Single taxpayers and heads of household – The Roth IRA income phaseout range now begins at $138,000.

IRA Contribution Deadlines for 2022

Whether a Traditional IRA or a Roth IRA, taxpayers have until April 15, 2023 to make their 2022 IRA contributions. This means taxpayers have the ability to assess their tax situation for the year before making key decisions about IRA contributions.

Flexible Spending Accounts (FSA)

For 2023, the annual maximum contribution limit for an FSA increases to $3,050.  As for 2022, participants will be able to carry over a maximum of $610 of unused health FSA funds into 2023.  However, this carry-over feature is optional (and may or may not come with a grace period), so it is important for employees to check their employer’s policy carefully. 

Health Savings Accounts (HSA)

Keep in mind that HSA accounts are only available to employees enrolled in high-deductible health plans.  So, once again, it is important for employees to carefully check their health plan’s policy.

  • The contribution limits have been raised for HSA accounts for 2023 to $3,850 for self-only coverage and $7,750 for a family. 
  • Catch-up contributions of $1,000 are allowed for anyone age 55 or older. 

Standard Deduction

The standard deduction increases regularly, and Tax Year 2023 is no different.

  • Married filing jointly, the standard deduction has increased by $1800 to $27,700.
  • Single taxpayers and those married filing separately, it increases to $1213,850.
  • Head of household, the deduction has increased to $20,800.
  • Those over age 65 have an additional standard deduction, singles/head of household additional $1,850 and all others additional of $1,500.

Top 37% Income Tax Bracket & Long-Term Capital Gains

The taxable income threshold for the top income tax bracket of 37% has also increased.

  • Married taxpayers, the bracket now starts at $693,750 of income and Married filing separately at $346,875.
  • Head of household and single filers jump into the 37% tax bracket at $578,125 of income.
  • Long-term capital gain 20% tax bracket starts at $553,850 for married taxpayers filing jointly and $276,900 for those filing separately.
  • For heads of household, the long-term capital gain 20% tax bracket starts at $523,050 and for singles at $492,300.

Sharing Knowledge so You are In The Know

Contribution limits and deductions are changing and every little bit matters.  If you want some trusted advice to ensure that you are taking advantage of available benefits and maximizing all opportunities for your future, connect with us at 703.584.2700, email at clientservices@washingtonwealthadv.com, or book time online with your advisor. We are ready to support you.

 

IMPORTANT WASHINGTON WEALTH ADVISORS DISCLOSURE INFORMATION

ABOUT WASHINGTON WEALTH ADVISORS

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Sources: 

https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2023

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits

https://www.barrons.com/articles/2023-tax-standard-deduction-and-tax-brackets-51666126766

https://www.irs.gov/newsroom/401k-limit-increases-to-22500-for-2023-ira-limit-rises-to-6500

https://www.fidelity.com/learning-center/smart-money/hsa-contribution-limits