It’s always a good time to plan for your financial future, but a new year, which only lasts a few weeks, can be a good reason to consider some planning strategies. Additionally, the government has adjusted some tax rules, and many of these changes benefit workers, savers, and most Americans. Here are some of the important changes our legislators and the tax code have put into effect for 2023:
Health Savings Account Upper Limits: An increasingly popular tax benefit for workers and families are Health Savings Accounts (HSAs). According to Jack Rushing, Senior Vice President of NFP, “These plans, especially when combined with a high-deductible healthcare plan, allow individuals to save for healthcare expenses on a pre-tax basis. Additionally, assets in these accounts can be invested for the short or long term, can grow tax-free as long as they are used for eligible medical expenses, and are transferable.
For 2023, the maximum annual dues amount is $3,850 (compared to $3,650 in 2022). For families, the amount is $7,750 per year (compared to $7,300 in 2022). The amount of the catch-up contribution for people aged 55 or over is $1,000 per year. For a family in the marginal 35% tax bracket, a maximum contribution can result in a federal income tax savings of $2,712.50 plus any state income taxes and other benefits.
Rushing explains that for the self-employed, “there is a common misconception that they are not eligible for an HSA. Anyone enrolled in a high-deductible health plan who is HSA-qualified can set up an HSA and benefit triple tax advantage.
And as an added reminder, check to see if your employer makes contributions to your HSA — if they do, it can be a valuable benefit. According to Rushing, “one thing to keep in mind is that unlike 401(k) limits, the total allowable contribution to your HSA plan includes any employer contribution.”
Increased 401(k) and IRA contribution limits: The amount an individual can contribute to a 401(k) plan in 2023 has increased from $2,000 to $22,500. This change will also impact 403(b) plans, most 457 plans, and the government’s Thrift Savings Plan. The annual “catch-up” contribution limit for those age 50 or older increases from $1,000 to $7,500.
The annual limit for IRA contributions increases from $500 to $6,500. The annual “catch-up” contribution limit for those age 50 or older remains at $1,000. This allows someone who turns 50 or older at any time in 2023, and is eligible for an IRA, to contribute a total of $7,500 to their IRA. These amounts also apply to Roth IRAs, which might be an attractive option for many workers, especially younger workers, but a Roth, as part of a 401(k) plan, can also benefit people with disabilities. higher income. See my previous Forbes post on this topic: Roth Strategies For High Earners And Business Owners
Increase in standard deductions: The Tax Cuts and Jobs Act 2017 increased the standard deduction for taxpayers, which is the amount of income exempt from income tax. Moreover, it has also indexed this amount to inflation. This means that as inflation increases, the amount exempt from income tax also increases.
For single taxpayers and married individuals filing separately, the standard deduction amount in 2023 will increase by $900 to $13,850. And for married couples, it goes from $1,800 to $27,700. For those filing as heads of household, the standard deduction increases from $1,400 to $20,800 per year.
Of course, if you choose to itemize your deductions on your tax return instead, these changes won’t affect you, but most taxpayers don’t itemize, so claiming these higher standard deductions will be a nice benefit for many taxpayers.
Upper thresholds of marginal tax brackets: In addition to the higher standard deduction, another stealthy tax benefit is that more income can be taxed at a lower marginal tax rate. It’s something that usually goes unnoticed, but if tax rates stay the same (and they go until 2023), then the amount of income you can earn before hitting the highest rate next high increases, you may end up paying less income. taxes. If this happens to you, this tax savings along with the tax savings resulting from your higher standard deduction may be an amount you set aside to plan for your long-term retirement.
Summary: Although there are thousands of pages in the tax code, here are some of the ways typical American workers can adapt and benefit in 2023. By combining a few of these strategies, you will help not only your long-term financial plan, but they can also lower your current tax bill.
This material is intended for informational/educational purposes only. Commonwealth Financial Network® does not provide legal or tax advice. You should consult a legal or tax professional regarding your personal circumstances.
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