Plus, how to arrange your finances to enjoy life NOW and plan for the future.
The government has made some adjustments to the standard deductions and income tax brackets for the upcoming year. Knowing where you fall within these new ranges can be important to your planning.
- New Standard Deduction for 2023: The amount has increased for 2023 with the married, joint filing couple will increase $1,800 to the new 2023 amount of $27,700 that can be subtracted from your income before you begin to ow taxes. The amount for single taxpayers and married couples filing separately went up $900 to $13,850 for 2023.
- Federal Tax Rates for 2023: The tax brackets were adjusted for inflation for 2023 by the IRS.
These are the new rates:
- 37% for incomes greater than $578,125 ($693,750 for married couples filing jointly)
- 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).
- New Retirement Contributions Limits for 2023: The IRS also released new limits for certain retirement accounts for next year. Make sure you know how much you can put into your IRA, 401(k), and other retirement plans. Read more here.
SECURE 2.0 Act of 2022
Plus, the recent passing of the SECURE Act 2.0 in the House and Senate means we have even more retirement plan changes in the coming year. The retirement package goal is to make it easier for Americans to save as well and help small business owners to offer retirement plans. Here are some of the key highlights which we will cover in more detail in our next article.
- The required minimum distribution (RMD) age has been increased up from the current age 72 to age 75 by 2032. And the penalty for failing to take an RMD will drop to 25% of the amount that should have been withdrawn, down from the current 50%.
- There is now going to be an increase in the catch-up contribution available to employees reaching age 60. Currently, anyone age 50 or older can make extra “catch-up” contributions into their retirement accounts. Beginning Jan. 1, 2025, individuals ages 60 through 63 will be allowed to make catch-up contributions to their workplace plan of up to $10,000 — or 150% of the regular contribution, whichever is greater — and that amount will be indexed to inflation.
- There are now limited transfers allowed from 529 plans to Roth IRA accounts. After the 529 plan has been maintained for 15 years or longer, funds from the 529 plan can be moved into a Roth IRA plan in the name of the beneficiary of the 529. The annual limit for these transfers will be less than any ‘regular’ traditional IRA or Roth IRA contributions made for the year. And there is a lifetime cap of $35,000 as the maximum amount that can be moved from a 529 plan in this manner.
Why Wait for Retirement?
Many people look forward to retirement as a time to travel, spend time with family and do meaningful work. However, wouldn’t it be better to put these goals into action before then? A financial plan can help you understand what your needs will be in your retirement years. But it can also help you build a strong foundation that allows you to enjoy vacations and the life you want now.
What are you waiting for?
Fear about the future can hold people back, and if you don’t have clear information about your finances, it can breed uncertainty and fear. A detailed financial plan with an advisor can uncover a clear path to goals you have rather than putting off experiences out of concern whether you can afford them.
Where do you find meaning?
When you think about retirement, what are some of the things you look forward to doing? People talk about creating a new identity separate from your job, being a parent, or other roles they hold. You don’t have to wait until retirement years to explore who you are and want to be. Plus, building the habit now will make for an easier transition to retirement and allow you to enjoy life now.