The Internal Revenue Service (IRS) has released new limits for certain retirement accounts for the coming year. After months of high inflation and financial uncertainty, some of these cost-of-living-based adjustments have reached near-record levels.
As a reminder, this article is for informational purposes only. Consult with an accounting and/or tax professional before making any changes to your 2023 tax strategy.
At McKell Partners, our tax-informed financial advisors often coordinate this work with our clients’ tax professionals. This personalized and holistic approach often yields better outcomes.
We would be happy to discuss these changes and incorporate them into your overall planning. If you have any questions or would like some assistance in this area, please contact our office at 951-521-1031 or schedule a consultation on our website.
Individual Retirement Accounts (IRAs)
Traditional IRA contribution limits are up $500 in 2023 to $6,500. Catch-up contributions for those over age 50 remain at $1,000, bringing the total limit to $7,500.
Remember, once you reach age 72, you must begin taking required minimum distributions from a Traditional IRA in most circumstances. Withdrawals are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
The income phase-out range for Roth IRA contributions increases to $138,000-$153,000 for single filers and heads of household, a $9,000 increase. For married couples filing jointly, phase-out will be $218,000 to $228,000, a $14,000 increase. Married individuals filing separately see their phase-out range remain at $0-10,000.
To qualify for the tax-free and penalty-free withdrawal of earnings, Roth 401(k) distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawal can also be taken under certain other circumstances, such as the owner's death.
Workplace Retirement Accounts
Those with 401(k), 403(b), 457 plans, and similar accounts will see a $2,000 increase for 2023, the limit rising to $22,500. Those aged 50 and older will now have the ability to contribute an extra $7,500, bringing their total limit to $30,000.
Once you reach age 72 you must begin taking required minimum distributions from your 401(k) or other defined-contribution plans in most circumstances. Withdrawals are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
A $1,500 increase in limits for 2023 gives individuals contributing to this incentive match plan a $15,500 stop light.
Much like a traditional IRA, once you reach age 72, you must begin taking required minimum distributions from a SIMPLE account in most circumstances. Withdrawals are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
Again, we incorporate these changes into our clients' overall planning and coordinate tax strategy work with our clients' tax professionals. To speak with one of our advisors, please contact our office at 951-521-1031 or Schedule a consultation on our website.