Are you planning your tax and investment strategy for 2023? You may first want to look at the recently released IRS 2023 contribution limits. Some of the limits have changed while some remain unchanged. We have compiled a list of the important numbers you need from the IRS to plan for the year ahead. These numbers only apply to the money you earn starting January, 1, 2023. Plan smarter and make the most of the coming year!
Standard Deduction
The standard deduction is a specific dollar amount that reduces the amount of income you have to pay taxes on. You can either take the standard deduction or itemize it on your tax return but you cannot do both. It is easier to take the standard deduction. However, if your standard deduction is less than your itemized deductions, then you will probably itemize and save money.
- How much is the standard deduction for 2023?
– If your filing status is single or married-filing-separately, it increases to $13,850 from $12,950
– If your filing status is married-filing-jointly, it increases to $27,700 from $25,900
– If your filing status is head of household, it increases to $20,800 from $19,400
Standard Deduction 2023
| Filing Status | 2021 Tax Year | 2022 Tax Year | 2023 Tax Year |
|---|---|---|---|
| Single | $12,550 | $12,950 | $13,850 |
| Married, filing jointly | $25,100 | $25,900 | $27,700 |
| Married, filing separately | $12,550 | $12,950 | $13,850 |
| Head of household | $18,800 | $19,400 | $20,800 |
Tax Brackets 2023
There are 7 federal tax brackets for 2023. Your bracket depends on your income and filing status.
- How can I get into a lower tax bracket and reduce my taxes?
The two common ways to reduce your taxes are credits and deductions. Tax credits will reduce the amount of tax you owe but they won’t reduce your overall tax bracket. Tax deductions reduce how much of your income is subject to federal taxes. Make sure that you take all of the deductions you can to try to reduce your tax bracket.
401(k) Plan Contribution Limits 2023
- The government has increased the employee contribution for 401(k) plans from $20,500 to $22,500.
- The $22,500 limit also applies to 403(b), thrift savings plans and most 457 plans.
- The 401(k) catchup contribution limit (only available at the beginning of the year you turn 50) increased from $6,500 to $7,500.
- The overall plan limit increases to $66,000 for 2023. This is an increase of $5,000 from 2022. The overall plan limit is the employee contribution + employer contribution + catch up contribution.
401(k) Plan Contribution Limits 2023
| Defined Contribution Limit | 2022 | 2023 | Change |
|---|---|---|---|
| Maximum employee elective deferral (age 49 or younger) | $20,500 | $22,500 | + $2,000 |
| Employee catch-up contribution (age 50 or older by year-end) | $6,500 | $7,500 | + $1,000 |
| Maximum employee elective deferral plus catch-up contribution (age 50 or older) | $27,000 | $30,000 | + $3,000 |
| Defined contribution maximum limit, employee + employer (age 49 or younger) | $61,000 | $66,000 | + $5,000 |
| Defined contribution maximum limit (age 50 or older), all sources + catch-up | $67,500 | $73,500 | + $6,000 |
Traditional IRA and Roth IRA Contribution Limits 2023
- The traditional IRA and Roth IRA contribution limits increased from $6,000 to $6,500, and $7,500 if you are aged 50 and older. The catch-up contribution limit of $1,000 for those aged 50 and older is the same as last year.
- You can only contribute earned income to IRAs.
- You can contribute to a traditional IRA regardless of how much you earn but you are not eligible to contribute to a Roth IRA if you earn too much money.
- The income limit for Roth IRA contributions has increased for 2023. This means that more Americans will now qualify for Roth IRA contributions.
- You cannot deduct contributions to a Roth IRA but may be able to fully or partially deduct contributions to a traditional IRA. To find out more about traditional IRA deductions, visit the IRS website.
2023 Roth IRA Contribution Limits
| If your filing status is... | And your modified AGI is... | Then you can contribute... |
|---|---|---|
| married filing jointly or qualifying widow(er) | < $218,000 | up to the limit |
| married filing jointly or qualifying widow(er) | > $218,000 but < $228,000 | a reduced amount |
| married filing jointly or qualifying widow(er) | > $228,000 | zero |
| married filing separately and you lived with your spouse at any time during the year | < $10,000 | a reduced amount |
| married filing separately and you lived with your spouse at any time during the year | > $10,000 | zero |
| single, head of household, or married filing separately and you did not live with your spouse at any time during the year | < $138,000 | up to the limit |
| single, head of household, or married filing separately and you did not live with your spouse at any time during the year | > $138,000 but < $153,000 | a reduced amount |
| single, head of household, or married filing separately and you did not live with your spouse at any time during the year | > $153,000 | zero |
SEP-IRA Contribution Limit 2023
- The SEP-IRA contribution limit is always the same as the annual additions limit for a 401(k) plan. The contribution limit for 2023 is $66,000. This is an increase of $5,000 from 2022.
SIMPLE IRA and SIMPLE 401(k) Contribution Limit 2023
The limit for individuals to contribute to their SIMPLE IRA or a SIMPLE 401(k) has increased from $14,000 in 2022 to $15,500 in 2023.
The catch-up contribution limit for ages 50 and up is $3,500 for 2023. This is an increase of $500 from 2022. The total contribution limit if you are 50 or older is $19,000 for 2023.
FSA Contribution Limit 2023
The Healthcare FSA contribution limit is now $3,050 per person in 2023. This is an increase of $200 from $2,850 per person in 2022.
Some employers allow carrying over some unused amount to the following year. The maximum amount that can be carried over to the following year is 20% of the annual contribution limit. This means that the carryover limit has increased from $570 per person in 2022 to $610 per person in 2023.
HSA Contribution Limit 2023
- The HSA contribution limit for single coverage is $3,850 in 2023. This is an increase of $200 from $3,650 in 2022. The HSA contribution limit for family coverage is $7,750 in 2023. This is up from $7,300 in 2022.
- If you are 55 or older by December 31 then you can contribute an additional $1,000. If you are married and both of you are 55 or older by December 31, then each of you can contribute the additional $1,000. However, the additional $1,000 must go into separate HSAs in each person’s name.
Estate and Gift Tax Exemption 2023
- The estate tax exemption increases to $12.92 million per individual and $25.84 million for a married couple.
- The estate and gift tax remains the same in 2023 at a rate of 40%.
- The annual gift tax exclusion will increase from $16,000 in 2022 to $17,000 in 2023. You can give $17,000 to as many people as you like without it having an impact on your eventual estate tax.
Social Security 2023
- The cost of living adjustment (COLA) will increase by 8.7% in 2023.
- The average social security benefit in 2023 is $1,801. This has increased from $1,657 in 2022.
- The maximum monthly payment amount for those that have reached full retirement age will increase to $4,559 from $4,194.
- The maximum amount of earnings that are subject to the Social Security tax will increase from $147,000 in 2022 to $160,200 in 2023. This limit is applied to each person individually. Your marital status, deductions and/or your spouse’s income doesn’t matter.
2023 IRS Limits Summary
| 2022 | 2023 | Increase | |
|---|---|---|---|
| 401(k), 403(b) employee contributions | $20,500 | $22,500 | $2,000 |
| 401(k), 403(b) catch up contributions for 50+ | $6,500 | $7,500 | $1,000 |
| 401(k), 403(b), 457 plan | $61,000 | $66,000 | $5,000 |
| 401(k), 403(b), 457 plan | $67,500 | $73,500 | $6,000 |
| 457(b) Contribution | $20,500 | $22,500 | $2,000 |
| SIMPLE 401(k) or SIMPLE IRA contributions limit | $14,000 | $15,500 | $1,500 |
| SIMPLE 401(k) or SIMPLE IRA age 50+ catch-up contributions limit | $3,000 | $3,500 | $500 |
| Maximum annual additions to all defined contribution plans by the same employer | $61,000 | $66,000 | $5,000 |
| SEP-IRA contribution limit | $61,000 | $66,000 | $5,000 |
| Highly Compensated Employee definition | $135,000 | $150,000 | $15,000 |
| Annual Compensation Limit | $305,000 | $330,000 | $25,000 |
| Traditional and Roth IRA contribution limit | $6,000 | $6,500 | $500 |
| Traditional and Roth IRA age 50+ catch-up contribution limit | $1,000 | $1,000 | None |
| Deductible IRA income limit, single, active participant in workplace retirement plan | $68,000 – $78,000 | $73,000 – $83,000 | $5,000 |
| Deductible IRA income limit, married, active participant in workplace retirement plan | $109,000 – $129,000 | $116,000 – $136,000 | $7,000 |
| Deductible IRA income limit, married, spouse is active participant in workplace retirement plan | $204,000 – $214,000 | $218,000 – $228,000 | $14,000 |
| Roth IRA income limit, single | $129,000 – $144,000 | $138,000 – $153,000 | $9,000 |
| Roth IRA income limit, married filing jointly | $204,000 – $214,000 | $218,000 – $228,000 | $14,000 |
| Healthcare FSA Contribution Limit | $2,850 | $3,050 | $200 |
| HSA Contribution Limit, single coverage | $3,650 | $3,850 | $200 |
| HSA Contribution Limit, family coverage | $7,300 | $7,750 | $450 |
| HSA, age 55 catch-up | $1,000 | $1,000 | None |
| Saver’s Credit income limit, married filing jointly | $41,000 (50%) $44,000 (20%) $68,000 (10%) | $43,500 (50%) $47,500 (20%) $72,500 (10%) | $2,500 (50%) $3,500 (20%) $4,500 (10%) |
| Saver’s Credit income limit, single | $20,500 (50%) $22,000 (20%) $34,000 (10%) | $21,750 (50%) $23,750 (20%) $36,250 (10%) | $1,250 (50%) $1,750 (20%) $2,250 (10%) |
Maximize Your Money in 2023
A new year calls for a new opportunity to take a look at your current tax planning and investment strategy. If you want to maximize your money in 2023, schedule a free discovery call with one of our fiduciary financial advisors today!
For more information about the 2022 IRS Limits, please refer to IRS Notice 2021-61 and IRS Notice 2021-45.
Alvin Carlos, CFP®, CFA is an investment advisor and fee-only financial planner, in Washington, D.C that works with clients across the country. He has a Master’s degree in International Relations from SAIS-Johns Hopkins. Alvin is a partner of District Capital, a financial planning firm designed to help professionals in their 30s and 40s achieve their financial goals through smart investing, reducing taxes, retirement planning, and maximizing their money. Schedule a free discovery call to learn how we can help elevate your finances.
